hmmmmm.....
Flash is definitely the best video format for publishing to the web... you can download a convertor easily. Just google 'avi to flv' and you should get a list.
As for compression codec... Try installing DIVX codec. This is pretty good for AVI.
Check this link too, should give you a better idea on what compression to use.
http://www.deskshare.com/Resources/arti ... n_AVI.aspx