That's some seriously outdated iMovie you have there. I'd strongly suggest upgrading to iMovie 6 HD (part of iLife 06) which you should be able to find pretty cheap on the used markets these days.
This is not to say that iMovie 5 can't be used, just that iMovie 6 HD was a big improvement on that, and your Mac is likely too old for iMovie 08/09.
My quick google on that camera indicates that it is in no way digital, meaning it has no digital output of any kind, making it impossible to connect it to iMovie (or any computer) without an analog-to-digital converter such as the EyeTV 250 Plus (the sort of thing you'd use to hook VHS players to computers).
You could buy an EyeTV 250 unit, or you could find a friend with a Hi-8 camcorder that has digital (Firewire) output, or you could just pay a local or online photo dealer to do this for you. The last option is moderately expensive but will probably yield the best results possible for that video.