I just did this yesterday with DVDstyler. ( It's free.) I had a 5 GB AVI clip from VirtualDub, (Old AVI format). DVDStyler created an ISO image on the hard drive, that I burned to DVD with Image Burn. The finished project took about 30 minutes. it changed the AVI to an MPEG 2 video AC3 audio. and created a menu. The end result was about 800 MB. I don't know if you wanted to burn it directly to DVD, or just save to the HD.
With nero, (I'm using Nerovision Express 3) you should be able open the AVI using the "Make Your Own DVD Movie" feature, then use "export" to change it to MPEG 2. When you click the export button, you should see the configure button. I change everything to automatic, except audio, I change audio to AC3 to keep the file size as small as possible. It seems to go faster that way.
Hope this helps.
Edited by 12x48y, 10 May 2009 - 08:57 AM.