I see the same problem. One thing our systems have in common is the AMD Athlon 64-bit X2 processor although mine is only a 3800+. I have an NVidia 6500LE video chipset, 2 GB RAM, plenty of drive space, running WMC 2005 SP2, 32-bit. I have the latest NVidia drivers & all MS updates applied.
When VideoWave works, it seems to work just fine. In other words, it is reasonably responsive & gets the job done (no comment on the UI & programming quality in general). It seems to hang more often when I'm muliti-tasking despite the other processes being tiny & irrelevent as far as CPU & memory usage.
I've also noticed that if I terminate Videowave (don't really have a choice), VCGProxyFileManager9.exe remains an active process. I can run VideoWave again, but when I save the same file I was working on, the audio is either not encoded at all or encoded improperly because there is no sound! Other mpg files play fine. If I terminate VideoWave & the errant VCGProxyFileManager9.exe process, it still does not properly encode the audio. I think this confirms the comments that the problem is related to temp or cache files & certainly involves audio encoding.
I haven't repeated these tasks enough to be convinced there aren't other variables, but right now I really think this is a bug in VideoWave & may have to do with using AMD CPUs. I do think Roxio could reproduce this problem easily enough. I suppose we will have to wait to purchase the "fix" in version 10.
PS. I think all the silly temp files are created because Roxio insists on playing the file all the time! Why does Roxio insist on doing this? Is there any way to turn it off? I don't want the file I'm working on to be played while I'm still working on it! I am perfectly capable of pressing Play when & if I am ready to do so! Playing by default is a total waste of CPU & memory!