P.S. Is there a best file choice to do this, or is .avi as good as any??
First, the question must be asked, "what do I need to do with the output file?"
That answer will likely dictate the choice of format/CODEC.
Though written for PrPro (more choices, and some other differences), this article will give you some tips on making the choices: http://forums.adobe.com/thread/878590?tstart=0
Good luck, and hope that helps.