The latest version of Quicktime has an iPhone export option...as long as you can view the video (avi or otherwise) in Quicktime, you can just 'export' to iPhone from the Quicktime file menu. You may need to install some avi codecs depending on the format of the avi's. I can't remember specifically what I've installed in mine (or if it was just the divx drivers) but it's the easiest way to get video into a format for the iPhone....I've found that anything previously converted for my video ipod works great as well.
Downloaded FFMpeg. What settings should I be using?? I ask this because my original avi was 700mb. When I used the ipod mp4 setting it encoded it but the file size was larger (750 mb) and it took forever (maybe like 5-6 hours).
I think I read somewhere the size of a movie for the phone should be around 250mb - 300mb?? What setting should I be using??