Are you sure its version 3?
I've just bought one from Aldi and its version 2, which I thought was the latest.
I have recorded a short sequence on the "normal" setting, which works fine.
My set up is an AMD 1800+ processor,so I wonder if your processor is too slow?
Incidentally, the "normal" setting produces some relatively poor (compared to DVD) video, so I don't think I will be using the software much.