Chinmay,
Thanks for the detailed info. Yes, the PPT did have some animations in it. I ended up recreating the Captivate file and the transitions are OK now.
However, I am still puzzled by one point. You say that Captivate handles animations from PPT well, but none of the animations from the PPT showed up in the Captivate timeline, or anywhere as objects in Captivate as far as I could see. So there apparentkly were "hidden" animations that caused problems in Captivate, and the only way to fix that was to go back and troubleshoot PPT.
To me, that's a backwards way of doing things - Captivate should display the animations it imports, so they can be handled like any other object. Why doesn't it display imported animations, or does it - and perhaps was my file was messed up somehow?
Hi.
Yes, Captivate handles the animations from PPT well. But it does not import the PPT objects separately. It picks up the PPT slide and imports it as an animation slide. Hence, you cannot see the internal objects of PPT slide inside Captivate.
Also, if you have Powerpoint installed on your machine, then you do not need to go back to Powerpoint and make changes. You can do this directly by using Edit PPT feature of Captivate 4.0. 
Thanks
Chinmay