After calling Apple (they were no help and I was disappointed) I kept searching in the Apple support community and found the answer.
To get iMovie '11 to show the iPhoto videos under the event library on the bottom left of iMovie, you simply have to empty your iPhoto trash. Once the trash was emptied, I restarted iMovie and the problem was fixed after iMovie did a search and showed the thumbnails of the videos.
Again, this info came from another person on the support community. Hope this helps someone else.