Phil
Thanks for the reply.
I forgot to mention a feature of Premiere Elements 12 that just might be what you are looking for. Sorry I forgot to mention the following.
The feature is Titles & Templates. Check out the Title templates under the Titles & Templates tab at the bottom of the Expert workspace.
Each theme comes as credits, lower3rd, title, or frame.
Pick a frame and drag it into your image on the Expert workspace Timeline. Then you will have the title template "frame" on Video 2 and the image for within the frame on Video 1.
If you need to scale either, right click the Edit area monitor, select Select, and then select which file you want to work on, the file on Video 1 or the file on Video 2.
You will probably have the greatest creativity opportunities for frames in Photoshop Elements, but the above way may work for you.
Please let us know the outcome.
Thanks.
ATR