Hi!
We are currently working on an application that involves reading AVI files as well. However, we are working with LabVIEW V8.2.1. It is actually pretty straight forward and shouldn't cause you any grief.
Can you play that file with Windows Media Player okay?
You could see, if there is anything wrong with your LabVIEW installation by first writing your own AVI file to disk and then re-open that one. This way you'd be sure that it is not a missing codec problem.
You could simply use a static image and write the same image over and over to your "pretend" movie file.
This should help you to isolate your problem at least.
Best,
Markus Tarin