Try the following steps:
1. Run TMPGenc
2. Select the menu "Option -> Environmental Setting"
3. Select the "VFAPI plug-in" tab
4. Change the prority of DirectShow Multimedia File Reader to some higher number, say 2.
5. Also change the prority of AvI VFW compatibility Reader to some higher number, say 1.
6. Click OK to save the settings.
Now you should be able to open AVI files.