I use Pinnacle Studio 8, but then I am using the software mainly for editing etc, so its a bit over the top just for converting AVI to MPEG. No doubt there are cheaper or free options around.
The following site has loads of info - its bound to have an article on this, and probably will tell you free software (or trial software) you can use. click here
One word of warning - the conversion takes a long time - eg a an hour of AVI takes several hours to convert to MPEG2