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Thanks everyone for the feedback and you guys are correct about the codec b/c I went to the source, the Sony Website. I did a search in their knowledgebase section and here is what they said.
Your still camera can shoot small AVI videos, but they don’t open in VideoFactory, Movie Studio, or Vegas, or they just show the audio, not the video.
The video that most current still image cameras shoot actually is what is called Motion JPEG video. It is a series of still frames added together to create a moving picture. In order for these AVI or MPEG files to open correctly in Vegas, Movie Studio, or VideoFactory, you’ll need a third party codec installed. Here are two such third party codecs:
Pegasus Imaging Corporation
I haven’t tried it out yet, but I’ll let you know how it works out.
Here’s the support site: http://www.sonymediasoftware.com/support/default.asp