Which version are you using? The XP version? Or the Vista/7 version? I just looked into this a bit more, (by downloading all the windows movie maker types I could find on the web) and the newest one, Windows Live Movie Maker, can't save to anything except wmv. If you want you can download Windows Movie Maker 2.6 and then you can save to avi. If you already have Windows Movie Maker 2.6 simply go to file, Save Movie File (ctrl+P), follow the steps until it asks what quality you want to save at, chose "show more choices" > "Other" > "DV-AVI"
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I just looked into this a bit more, (by downloading all the windows movie maker types I could find on the web) and the newest one, Windows Live Movie Maker, can't save to anything except wmv. If you want you can download Windows Movie Maker 2.6 and then you can save to avi.
If you already have Windows Movie Maker 2.6 simply go to file, Save Movie File (ctrl+P), follow the steps until it asks what quality you want to save at, chose "show more choices" > "Other" > "DV-AVI"