I don't know the answer........................
but I am responding to bump it up the list, in the hope that somebody else might see it.
As a general comment I thought that about 17 mins. of avi, is about 4GBs, which it sounds like what you have. So I would have thought that to reduce the file size avi will have to be encoded into a different format. You could try TMPGenc at click here which i have seen suggeted on here for similar problems.
I would add that I am a complete novice in this area, so if I am completely wrong I'm sorry!!