Try Handbrake, but download v0.9.3. They didn't dump .avi output until v0.9.4.
X2 I use freemake if I absolutely need to encode to avi. The feature set isn't bad if you choose the custom option. Does a good job imo.When I was looking for free media converters for a project last year, I believe I ended up using Freemake:
http://www.freemake.com/
It may not have as many features or tweaks as some of the other programs, but does have a good number of conversion options, and the interface is quite simple to use.
+3 for Freemake Video Converter
Try it, but please make sure you do not install the bundled smiley pack during installation, click CUSTOM and deselect the crap that's included.
Otherwise, it has an easy to use interface and does the job well