Welcome to the forums Phil,
VS should not have any problems with DV. A simple way to check is to look at the Project Properties. Go to Settings menu>Project Properties. The default is MPEG, so press the drop-down menu and change it to AVI. Next press the Edit button, go to the AVI tab, and press the drop-down menu for Compression. DV Type-1, DV Type-1, and others should be showing. If it does show DV Type-2, there may be problem with your video file. Where did it come from?
Even though it can be played in various media players, the file may have some corruption. Video editing programs find small corruptions, and will have problems with them. While VS should not have a problem with Type-2 DV, if possible you could try converting it to Type-1, and see if you have better luck. I've always used Type-1, others have always used Type-2, so there is no hard-fast rule.