For a list of the file types you can use in Windows Live Movie Maker, see What kind of files can I use in Movie Maker?
Support for using MPEG-2 and Microsoft Recorded TV Show video files in your movies is available only if your computer is running one of the following versions of Windows: Windows Vista Home Premium, Windows Vista Ultimate, Windows 7 Home Premium, Windows 7 Professional, Windows 7 Enterprise, or Windows 7 Ultimate. Depending on the camera you use to record video, you might need to install your camera's editing software before you can decode video in Movie Maker.