There are many different codecs that all call themselves .avi. That doesn't make them the same, nor does it mean a player/program will be able to play everything called an "avi."
I've noticed that since updating XP with SP2, all my old and new .avis that I made with FRAPS will now hang/crash in WMovieMaker - and half the other newer video editing software I've tried - they won't load. They loaded just fine in XP with no service packs. I'd assume I either don't have a backwards compatible plugin (or whatever) so the "new and improved" WMM can 'read' them, or....whatever.
I also bought a small mini-video recorder that had these raw files that you had to convert before being able to upload/work with them - and would only use .wmv, which my old editor didn't want to open without converting to .avi first, which could take hours...and...so on and so forth.
And yes, such things are very annoying, especially when you pay money for somethng and have to convert/alter, if it's even possible. I won't be buying an ipod.