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> If you want to encode to MPEG2 then the best tool is TMPEG. If you
> want to go to VCD, well that's a bit of a mission
TMPEG also does VCD. All you need to do is create a MPG which is VCD compliant and then use Nero to burn it as a VCD.
The tricky thing with AVI to MPG is the sound, you need to rip out the sound from the AVI and save it as a WAV. VirtualDub is what you need to rip the sound out. Also you need to know whether its a normal 2 channel track or AC3. If its AC3 you need to convert it even further.
Also VCD is only support to 80 minutes so if the video is longer it needs to be slit into 2 discs. Another option to consider is that if its a good quality AVI is to create it as a SVCD. If you use high quality SVCD you can get 45 minutes on 1 CD. SVCD is variable so you could even get 55 - 60 minutes and still get a good quality image which would be better than VCD.
I wonder what you want to do!
As a general point, transcoding movies is a bit of a bad idea because you will probably lose a lot of quality. But anyway.
If you want to encode to MPEG2 then the best tool is TMPEG. If you want to go to VCD, well that's a bit of a mission, but if you read the VCD tutorials on doom9.org that can give you some help.
http://www.doom9.org/conversionguides.htm is the link you want. All the software and everything you need is on there. I recommend you follow the DVD2SVCD guide.
However in future I recommend you download VCD copies off the net instead of DivX, as your results will be a lot better.
Happy hacking!