Actually, I think celegorm could be onto something with a virus scan, though I don't think it's the codecs themselves that are infected.
The fact that it keeps saying it wants to play on windows media player suggests to me that it wants to run something in the background that it can only do with an unpatched / insecure version of windows media player. I'd hazard a guess that you're running the latest (or at least a relatively secure!) copy of WMP that has patched this issue and prevents whatever nasty work it's trying to do from being executed. This is a GOOD thing, I'd certainly be very suspicious of trying to get such a video to work.
How did you get the avi file by any chance? I'd run a full scan on the file itself and, if you downloaded it, whatever program you used to do so. I'd also try downloading it with a different browser / program / whatever than you used originally in case the program itself has become infected in some way (it's not unknown, IIRC there was a virus a few years back that hooked into IE to do something like this.)
As a general rule, if VLC can't play it then it's generally either very broken or infected