You have gotten some good advice about making sure to get a direct selection by CTRL clicking the thumbnail to select the photo. Also another note for those who are having problems, this action was meant to be used ON a layout meaning that the photo can't be the only layer. Place a photo on top of a paper and then try to run the action with a direct selection. I hope that works.
I had Angie check this out too since I don't have some of the new versions of Photoshop Elements. She mentioned that with PSE 11 it no longer needs the separate PNG files for the action to run. She installed the Photoshop version of the action and it worked fine. That is another thing to try if you are still having problems.
Let me know if you have any other questions.