DVDX is supposed to do exactly what you want in one step. Just insert your DVD and input your desired settings, then it converts directly from the DVD to an AVI (DivX if you have it, XviD if not) file. However, it's a buggy program, and I've never gotten it to work consistently on my PC.
The other way is more complicated, but much more reliable. First, use DVD Decrypter to rip the original data onto your hard disk. Then use TMPGEnc DVD Author to extract the MPG file(s). Then, use some sort of software (I wouldn't know which) to convert the MPG to AVI.