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In what format is the AVI? Is it highly compressed, like, divx, xvid, or some other format? Your best bet may be to transcode that avi to a different format prior to using it in AE. Some good format options would be Quicktime "Animation" codec @ best/full quality, or an uncompressed .avi (file size will be larger).
It is compressed as MPEG4. My whole project worked when I had After Effects 6.5, it seems CS3 is giving me a problem
Try transcoding it.
mp4 is a highly compressed format. It might be giving you troubles.
As of CS3, such things are handled by MediaCore, which in turn might not properly handle some stuff that does not comply with the specs a 100%. Trying to convert it in VirtualDub or SUPER© is therefore advisable. No matter what Adobe want us to believe - AE is simply not cut out for such formats.
It was the compression problem
I will find a way to decompress