most avi files are but depends on the codecs used. AC3 audio is not supported. the video will play but no audio. do you know what codec the video is in?
It must be your AVI file. Possibly not an AVI or its corrupted. Try another file.
I have never had any issues with AVIs other than the AC3 issue Howarmat mentioned previously.
Next time, if you are downloading or ripping video content, watch out for the specific details such as video and audio format.
On the internet the most common you can find that's offers good quality and runs on the PlayBook is video format .mp4 h.264 & audio as .aac codec or .mp3 - look for these details next time..
You can use free software - 'Freemake' to convert your existing video files on the desktop.