I use AVPlayerHD on my iPad so there is no need to convert AVI's. There are a few apps that will play AVI's, much better than messing around converting files.
I swear by AVplayerHD it works so well with nearly any video format and as tony said no conversion, just FTP or http upload the videos (or via iTunes file copy)
Agree totally with both these posts. I never use iTunes for video. I'm yet to have a file that AVPlayer HD Can't handle. Well worth the few bucks to save the heartache (and to install the videos once the App is on, plug in your iDevice, go to the 'Apps' tabs for it in iTunes and scroll down, you'll notice AVPlayerHD and you can add your videos in there).