Are you creating your own video to be used in the transition? The total frames should not exceed the length of the video. You might want to add four 30 seq sequences. Use about 5 - 10 frames per second for better results.
As for codec errors, I reencoded all of the built in effects to DIVX AVI files. Once I did this, all of the codec issues went away. klite installs so much extra stuff.