1. It doesn't support xvid or divx for that matter, so that mpeg 4 modifier probably changes it enough so that the LT is handle them properly.
* Supported video formats: MPEG2, MPEG4 (low res), WMV, H.264
*Supported video file types:
mpg, mpeg, vob, mp4, wmv, asf, avi, m2t, m2ts, mts, m4v
2. As you can see, it supports avi, but unless you're having issues with other normal avi content, I wouldn't be terribly surprised. Most cameras use an unusual way of compiling the video data, so even if it doesn't end up being in some proprietary file type, they aren't as easily transferable as intended. I would look into that specifically, it's most likely DV avi, not standard avi. More info here: http://en.wikipedia.org/wiki/Audio_Video_Interleave