Also note that AVI is just a container and there are some really esoteric codecs used on some AVI files. So asking if X (be it n900, wmp, vlc or whatever) will play "AVI" is kinda worthless unless it implies that the AVI files in question will only ever use one of the common codecs.

Also as said the resolution is an issue, don't try playing full-HD on the device.

I have a bunch of TV-series DVDs encoded to 720x416 H.264 in mp4 container (encoded with Handbrake) to watch on train trips, they play beatifully and H264 is much better codec (better size and quality) than the mpeg codecs usually used in AVIs.

I recommend you check out http://wiki.maemo.org/Video_encoding for details.