On the face of it, you don't seem to have the decoder needed to work with your AVI file(s).
An AVI is merely a "container file" that you put compressed video into. To use the video you have to decompress it with a decoder which matches the compressor or coder used to put it into the AVI.
You can find out what "codec" is needed by getting a copy of the GSpot Codec Information Appliance free
from here. Run the application and 'drag' your AVI onto it in Windows Explorer.

The two ringed areas show the Video [top] and Audio [bottom] codecs used in the AVI. In your case since the program is complaining about thumbnails, you are probably missing the required video codec.
Depending on what codecs you're short, the Combined Community Codec Pack
from here is often a good starting point. Whichever way you do it, you are going to need to do some reading on CODECS to understand all that. Writing DVDs is not easy, despite what sales slogans say.
Regards,
Brendon
P4 @3.20GHz on Albatron PX-865PE Pro II with 2GB DDR-SDRAM, FX5900XT video, Viewsonic monitors,
BENQ DW1640, in XP Pro and Windows 7
I blame it all on Global Warming / Global Cooling / Global Staying the Same [pick one]