I've been playing with AVI files using different editing packages and getting frustrated seeing similar problems on the S11 imports. All the different AVI formats I tried played fine in Windows Media Player, except for the data rate stuttering to be expected in HD.

I've come to the conclusion that S11 (probably S12), may only be happy importing files of the same restricted types it can create when you go to 'Make Movie' and select an AVI file format. It has a few AVI codecs, but if you add or include more, they seem out of scope to work for display and preview, but might work for an export render. There is a disclaimer.

It seems happy with its own and other 'Uncompressed' AVI, the other limited choices are a bit old hat now. I was able to import files not listed and re-export some AVI versions  OK, but no thumbnails showed and I couldn't preview - probably due to incompatible format and high data rate. I think S11 embeds its AVI codecs in the application, whereas Windows Media Player is smarter, finding and using any suitable codec on your PC.

AVI may not be a motion prediction/compression format like MPEG, but it certainly seems to come in a number of different flavors.