yo - this is sorta possible, if you want to convert them permanently, so that you can just play them any time i dont think it is possible. I could be wrong though. If you are having trouble playing the avi file, you need the divx codec. This way you can watch ripped dvd movies as well as avi files and such.
The reason i cant say "sure you can convert avi files" is that .avi can be a variety of things. it can be windows media, divx, a true avi file, etc. so, if you want to simply be able to watch the darn thing, post a reply and i'll let you know how to get all the necessary stuff.
If all you want to do is convert it, heres something to try though i doubt it'll work. open resedit (go to versiontracker.com and do a search for it if you dont have it already - you should) and go to "File -> Get File/Folder Info" chose your .avi file and a window will come up. the first input box displays the name of the file, then the next two are "file type" and "creator," respectively. for the File Type, type in "MPEG" and for the creator type "TVOD," both in all caps. (for a QT movie instead of MPEG type MooV) Again I doubt this will work but its something to try.
So let me know if you want the divx info.
-LuAp