I encountered the message "Adobe Premiere Elements is running very low on system resources..." while the Celebration DVD menu was being encoded in a standard project. Later, near the end of the burning stage, I got a Memory Allocation error.
There's a shockwave file used for the menu background, fireworks, that is causing the problem. I guess I don't really know that it's that file or if it's really Premiere Elements that is the problem.
C:\Program Files\Adobe\Adobe Premiere Elements 7.0\DVD Templates\Holidays and Events\(V)Celebration\celebration_pal_s_bg.swf
I was able to convert it to another shockwave file and that got rid of the problem. I also tried a tip by Bob where you just convert the .SWF to some other format and use the same basename naming convention. I tried Quicktime Animation and that got rid of the problem as well. You have to make sure that Premiere Elements doesn't see the .SWF file by moving it somewhere else, otherwise it won't use the .MOV or whatever format you use.