iMovie supports MOV and MP4 video, I always use a web-based application called reviewstwon video converter to convert MPG video to MP4 video for editing in iMovie, free and works quite well. You may check it out. And here are the steps to convert video.
Step 1. Run your web browser and visit online video converter, you can google search for it, this app compatibles with IE, Firefox, Chrome, Safari, Opera, etc.
Step 2. Click 'Select files to start' to open the converter and import your MPG videos.
Step 3. In the format drop down menu, select MP4 as output format
Step 4. Click 'Convert' and select a folder in your computer to save the converted video.
Step 5. Click 'Start' to run the conversion, it will take a few minutes to finish the task, Once the conversion is finished, you can click 'Open folder' to located your converted video.