You should try getting an app called ffmpegX, it lets you convert from one format to another (including .avi to mpeg2 for dvds).
Another thing you can try, is to just drop the .avi into iDVD or Toast (assuming you have a dvd burner). It should automatically convert to the appropriate format and then you can burn a DVD, all though make sure you have a lot of free memory if you use iDVD. It converts to DV first I think, which uses ~20 GB for a hour and a half movie.