This comes with snow leopard, it's quicktime x. Open your .avi file with quicktime x. Now you should see the same as in the screenshot. To the right from the play button you have fast-forward and a little bit more to the right a square with an arrow pointing out of it. Click it, select itunes.
Select iphone and ipod. And you're done. Now select in itunes in your iphone screen which movies you want to sync.
With quicktime 7 pro (which you get free with snow leopard, but you'll have to pay for with Leopard) has the option under Archive; export to export it as an iphone movie. http://creativebits.org/files/quicktime7-export.jpg
Export the stuff, open it in finder with itunes. Select in itunes in your iphone screen which movies you want to sync.