What did you use to create the AVIs from your VOBs? I've tried various programs to create AVIs or MPGs, and even though they always work in Windows Media Player, AndreaMosaic won't accept them.
Your creation process is OK. What you need is the Video for Windows codec for your compressed AVI. For DivX for example there exist the Video for Windows codec for Divx and the DirectX codec for DivX.
Actually the Video for Windows codecs are starting to disappear, as a replacement of the DirectX codecs. In any case actually when I install Divx505, XVid and DivX TotalPack 1.7 it seems that these codecs are installed too.