Maybe you heard this before. AVI files types is just a "container," you, the TV, still have to deal with the underlying codec, and that's what the TV is complaining about. If friendly, often they aren't, tell you, for example "no WM9 codec available." and if you were to be doing this on a PC, you download a WM9 codec, but ta-da, can't do it on a TV.
Video on a TV-USB is for playing around, extremely limited. So either spend the time re-encoding all your AVIs, or run a dedicated PC to do this.