Make sure the movieis an MPEG clip. You should have already transfered this video
to disk via image capture (in your Applications folder). 
Open the file in QuickTime and hit (Command-I) to bring up the information on how this file was encoded. Example:
Easy Solution
- Download MPEG Streamclip for free or buy DropDV or buy Export2QT and convert the MPEG file to a DV stream so iMovie can import it
A more "physical" solution (if you cannot seem to get it off the camera)
- Purchase three RCA to RCA connectors - the sort that will join standard RCA leads
- Get your hands on 2 standard DV camcorder leads - the mini jack one end, yellow, black and red rca's the other end
- Connect the two leads using the RCA connectors
- Plug your still camera one end and a mini DV the other end
- DV cam in VCR mode - still camera in playback mode
- Start recording the DV camera
- On the still camera's playback menu, play a slideshow - set the onscreen display to off so you don't record the on screen graphics
Related:
Using MPEG or DVD footage
Using AVI files like the ones from a Canon Power Shot
