AVI2DVD
http://www.trustfm.net/divx/SoftwareAvi2Dvd.html
This program is free and will do exactly what you want - ie convert an AVI file to DVD format. It will create an ISO image which you can then burn to a DVD blank with something like Nero.
If you don't have Nero, you could use this free program:
DVD ISO Recorder
http://isorecorder.alexfeinman.com/isorecorder.htm
Sorry for taking a while to reply - haven't had a chance to check back after asking the original questions.
But these things should do what you want - for free.