well, I am going to presume you are using the x264 h.264 video encoder in your avi.
i which case you do realize that avi has nothing to do with how it looks, right ? ... and that in fact by not using the mp4 container you are giving up chapters and the ability to use the ac3 dd sound track ? Oh, and true same as source variable framerate ? As well not let the atv use the decoding power of the nvidia gpu for playback ?
Just thought I'd mention it. But, if it is working for you then great.
Added Note: To respond to the original topic, avi is certainly *not* the best format .. really for anything unless it is all the playback device will play back (which is anything but true for the atv). In fact its an antiquated container that never really had a prime technically speaking. Do not be surprised if it is gone in the next hb rev.