Your wondering why it takes so long; well from what you have as a system, it is pretty well comparable to mine or zoomtm, but with these programs sometimes you have memory settings (do you have dual channel?).
Another program which changes .avi to vcd is Nero! If you have a version 6.x, use Nero Express and convert the .avi to vcd.
There is another simple way which is explained which requires you to take the sound out with VirtualDub (free) and then process the file using TMPGEnc: here's the download site, http://www.tmpgenc.net/e_download.html
but how long it will take, you'll have to try it to know.