Tim, honestly I do not think .avi files will work but I have not tried so I am unsure about anything beyond what is involved with the example channel itself
I copied existing maxis .movie files to my example custom channel directory and renamed them (for testing purposes of course), but I do not even know what software to use to actually make .movie files... someone else can hopefully post here concerning that lol
Hmmm..I thought they were avi's since that is the format they use when the game creates a movie file of what you tell it to...might be wrong though...time to explore!!