Unfortunately the TV Shows section is, I believe, read directly from the iTunes database file. This means that files must first be parsed through iTunes in order for Front Row to read them as a category of "TV Shows." There is an alternative, however. Unlike "TV Shows," the Movies section does use a folder on the hard drive (as well as the iTunes db).
To put this simply, if you go to ~/Movies and create an alias to the TV Shows folder that is located under the folder you specified as your iTunes Library, you'd be able to use those DivX avis. Just drop them in your "TV Shows" folder and then you'd be all set.
The only difference here is that you'd do Videos -> Movies -> TV Shows instead of Videos -> TV Shows.
In this way you'd not lose any video quality as a part of transcoding, and you'd still have a central repository of TV Shows in one folder. This is how I get around the whole ordeal.