There is a few freebies about.

Generally an AVI file will be smaller than a mpeg2 file, but may be larger than an Mpeg1 file (coz the mpeg 1 file is lower quality for the same size video) Traditionally most movie files you will come across will be around 700mb, a carry over from the DVD to CD storage days. For an AVI to approach DVD quality, it is normally about twice that size, so is rarely seen.

There are few converters around, one free one I use a lot is DivXtoDVD, because it handles the NTSC to PAL conversion quite well for me.

I them use VobTOMpg (also free) to convert the resulting DVD back to Mpeg2 format so I can then trim the black bars off top and bottom (for some reason the majority of people whom post videos dont like wide screen! ). I do that with any of several software packages, I generally use either TMPGenc or WInAVIvideoconverter, both of which you should pay for. (Note both of these can convert directly, but I like to do it the way I do as WInAVIvideoconverter is often jumpy when converting NTSC to PAL, and TMPGenc takes four times longer)