The question is: why on earth do you need AVI? I've not seen a need for AVI files for several years now.
Especially in the era of HD picture, surround sound and soft subtitles.
And if you are downloading your movies, you should:
- forget about AVI files
- look for material already AppleTV compatible. Believe me, there are many!
- look for decent HD rips (usually from BluRay sources), that come all in MKV format, due to obvious selection of tools available 😀
The BDrips can either be recompressed (in HandBrake) or repackaged into iTunes-compatible MP4 files (in Subler, MP4tools, VLC etc), with some limitations (main problem is the DTS audio track, in rare cases also the Microsoft-format VC1 video track - this one needs to be converted to H.264/AVC).
At any rate, repackaging MKV into MP4, even with audio conversion is much, much faster than reencoding. The downside is large file size.