As the above poster said, the size of the QT movie is irrelevant--only the length. iMovie works with DV streams, which are 4MB/second and only lightly compressed. iDVD compresses and burns MPEG2, which has much higher compression and, in the case of iDVD4, can compress 2 hours of video to fit on a DVD. The less you're squeezing in, the better the quality, of course, but it'll work in any case.
So, if you can open and play the AVI in Quicktime Player, and you've got QuickTime Pro (worth the $20), this is all you have to do:
Open the videos in QT player. Choose export from the menu, and select "dv stream". Make sure your video is in NTSC (unless of course you're from a PAL country), and that the sound is included. This will export a big, ol' chunk of video in .dv format.
You can then drop that file in the Media folder in an iMovie project folder, and open iMovie. When you do, it'll ask if you want to add the clip(s) to the clips pane. Say yes, and you're done--now just put the project together and feed it to iDVD.
Two caveats: You might be able to drop the .dv file directly into an iDVD window and have it recognize it; never tried, but it's worth a shot if you don't need to adjust anything.
And, iMovie may have trouble importing .dv clips bigger than 2GB (9 minutes); earlier versions did, anyway. If it does, and the direct-drag-into-iDVD doesn't work, just cut the AVI up into chunks (copy and paste pieces of it into new movies in QT player), export those, and put them together in iMovie. I've done this (with anime I fansubbed myself) and had no noticable glitches at the breaks.
