Originally posted by Troll:
Have you tried converting the mpgs to a DV stream?
That won't work.
Quicktime is absolutely and inexcusably STUPID when it comes to mpeg support. Quicktime can play mpegs, but can't demux them. (in mpegs, the video and audio are kinda sorta mushed together...demuxing means to separate the video and audio). If you try, for example, to export an mpeg in QuickTime to something else, it'll only export the video.
Now, the problem with iMovie is that everything has to be exported to .DV format. When you 'import' something in iMovie, all that's really happening is a QuickTime export to .DV from the original media (in this case an mpg). So, since QuickTime can't demux the mpeg, you get video only.
What you need to do is get an MPEG demuxing utility (search versiontracker, there are alot of programs that do this). My personal favorite is ffmpegX.
This will split the mpeg into an audio file and a video file, each of which you can eventually get into imovie separately.
Quicktime, as I understand it, used to be able to demux mpegs fine, and there is absolutely no excuse for such an embarrassing lack of simple functionality.
I've submitted feedback to apple a couple times, dating back to the public beta days.
Sorry to ramble, I've been up 44 hours but I hope that helped a little.
edit: if you use ffmpegX, you could convert an MPEG to a divx file (be sure to use mp3 audio and divx4/mpeg4 video), and assuming you have the divx.com quicktime plugin, you could import that divx file directly into imovie.
it may be easier though to use something like
http://www.versiontracker.com/dyn/moreinfo/macosx/14618 that simply demuxes the file.