For the uninformed, the "Divx" Flambus is referring to is NOT the .avi codec. Rather, it was a format that directly competed with DVD in the early days of the format. It died in early 1998, I believe.
Why it didn't work: lack of widescreen, rental only, no extras included, couldn't be copied onto one's hard drive, etc... It is also perhaps the biggest reason why movie studios such as Fox, Disney, and Paramount took so long to get onto the DVD bandwagon. They wanted more control over what the people saw.
Yep, bad idea.