The simple answer is lower the bitrate of the encoding and lower the resolution of the video. The size of your avi is dependent on a number of variables, the resolution( the bigger the picture size the bigger the file), the bitrate you are using( the higher the bitrate in audio and video encoding) will increase the size.
When I encode my SBC DivX movies my usual rez is 512x384, and in using nandub to produce a Smart Bitrate DivX it does help produce a smaller file size though not always. But the most important variable is the length of the movie your not going to put a three hour long movie on a single cd and keep the quality.
For tutorials on SBC encoding try Doom9.net, hope this helps.
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