machinimafreak: but when i looked at the movie in windows movie maker, it looked fine
I'm thinking that the device you are capturing with uses a "compressed .avi" format, and Studio might not recognize that format. I read somewhere that there are over 200 different types of .avi format.
You might be able to convert your file, have a look at THIS.
Also, you could open the file with Windows Moviemaker, and create a DV/Avi file. The resultant file just might be the trick.