According to the nero help site it cannot convert the avi video files for burning to vcd."WHAT THEY SAY"
looks like you'd have to convert it to mpeg format first before burning.
others view point.
I have managed to create VCD from AVI's in Nero. I have had about 99% sucess with this. What I have found is that you need to install the following video Codec's
DivX5 from click here
XVid from click here
Give it a try and you will see that it works
goto click here. help files and tutorials in easy to follow guides and free.