The best program out there for slicing and dicing AVI files is
Virtual Dub. It's not a movie maker, but it'll help you re-process individual files (resize, crop, adjust colors, stabilize jitters). If you set it to stream copy mode, you can cut parts out without having to re-encode the whole file.
Once you're happy with the files, you can use Movie Maker or Nero to build the final DVD.