Are you sure they are actually .avi files? Or are they AVI files? (there is a major difference between the two). Check the Properties tab on the video files to ensure they are .avi. or AVI
These are the types of files used by WMM (windows movie maker):
You can import files with the following file name extensions into Windows Movie Maker to use in your project:
Video files: .asf, .avi, dvr-ms, .m1v, .mp2, .mp2v, .mpe, .mpeg, .mpg, .mpv2, .wm, and .wmv
Audio files: .aif, .aifc, .aiff, .asf, .au, .mp2, .mp3, .mpa, .snd, .wav, and .wma
Picture files: .bmp, .dib, .emf, .gif, .jfif, .jpe, .jpeg, .jpg, .png, .tif, .tiff, and .wmf
As you can see, .avi is one of the file name extensions used by WMM but AVI is not. Therefore an AVI file can't be imported or edited in the WMM program... only .avi files can.
I thought it might be useful to offer some interesting information on just what an AVIi file really is:
The sad story is that an "AVI" file is just a wrapper, a package that contains some audio / visual stuff, but with no guarantees about what's inside. Microsoft created the AVI format for packaging A/V data, but it's just a specification for sticking A/V data in a file, along with some control information about what's inside. It's sort of like having rules for putting boxes together ("insert flap A in slot B"), and rules for labeling the box, but anybody can put any sort of stuff in a box, in any language. You can make sense of the contents of a box only if you have the right translation kit, otherwise it's all Greek to you (and to Windows).
Each developer of a new A/V format is responsible for writing the translation kits that permit your Windows system to understand that flavor of AVI. These kits are called "codecs", for compressor-decompressor, because the video and audio formats usually perform some form of compression to reduce the amount of data in the file. Windows comes with some basic codecs built-in (and with additional ones in more recent versions). If you buy video capture hardware like a USB camera or a PCI board, it will include the codecs needed to understand the formats produced by the hardware. If you buy a video editing program, it will often include additional codecs to support a wider variety of video formats. However, this means you now have a license to create files that other people can't play. Unless they have the same codec, the file is useless to them.
The result is that sharing video files on PC's can be quite messy. Sometimes the hardware or software product provides a way to share codecs with others, or has posted them on a Web site. Sometimes you can find a third party that provides a compatible codec. And sometimes you can't, and it seems like nobody has considered the possibility that you might want to share your video with others. There is no central clearinghouse for video formats, no standard way to figure out how to get an AVI file to play on your system.
The same basic idea of a general file format with add-in codecs for different video formats is used for the Apple QuickTime video format. As usual, the situation is not as anarchistic on the Macintosh, because Apple tries to build in a wider range of standard formats. Things get more complicated on the PC because video files can be in both AVI (.AVI) and QuickTime (.QT) format, which means installing additional codecs for new AVI formats, plus the separate Apple QuickTime package with its own codecs.
So, there you have it... the difference between AVI and .avi formats. Bottom line? If your DVD rips are in AVI format you will NOT be able to import them into WMM. If they are .avi you CAN.
Hope the information has helped. :)