try loading to virtualdubmod then save as xvid, not to sure really? in video tab drop down box you see fast compress and normal compress, tick one
Download VirtualDubMOD and run it. Go to file > open video file... Find your uncompressed avi and load it. File > Save as At the bottom select Normal Recompress and then where it says compression click change and change it to MPEG-4 Xvid. That should work, I think ;-)
AutoGK guide from Afterdawn: http://www.afterdawn.com/guides/archive/dvd_to_avi_autogk.cfm Be sure to check out the guide section on this site, they have many great guides that have helped me out countless times. edit: Just realized you are starting out with an uncompressed avi and not a DVD, if you want to still use AutoGK, this guide should still be applicable.