Which version of iMovie is it? The early versions only opened .dv format specifically. The new version can open more Quicktime type formats using the Import ... command. But still it might have difficulty with some formats. Particularly if you don't have the QT plug-ins. If your file is an mpeg2 format movie then you'll need the mpeg2 plug-in which is a commercial acquisition. Unless you have dvd studio pro or final cut pro which have this plug-in come with them. It would help if you had QT Pro also.

This 'always' happens with all avi files??? Go to your QT Prefs>Plugins>MIME Settings (at bottom of window is a mime button) In the new window tick ALL options for plugins. If you don't already have it, dwnld divx & 3ivx. I'm not sure you'd be able to use them for encoding if you're not a QT Pro user but they should help decode your movies. AVI is very much like QT. It has a generic video format, yet it can also be a hybrid format incorporating other types of compressed formats. Becoming very popular is avi-divx. So start building up your QT plug-ins: 1. DivX, 2. XviD, 3. 3ivx for a start. But see if you can get the mpeg2 plug-in.

Also see: Setting & updating QT MIME Plug-ins