When choosing video file formats you have to remember that things like avi and mpeg are only the containers that the file is transmitted or stored in. For compatability either avi or mpeg formats are probably the best - most players will accept and play either format (avi probably wins out here marginally as some players still don't like mpeg formatted files) depending on the codecs used to
Compress and
Decompress the files. Many files these days are compressed using high compression, high quality codecs such as H.264, XviD, DivX, etc.
Once upon a time avi's were thought of as larger sized, higher quality files and mpegs as smaller sized, more highly compressed files but with the advances in compression techniques, using codecs as mentioned above, it is quite possible to have an avi file that is smaller in size than an mpeg and better quality.
I tend to favour avi files compressed using one of the abovementioned codecs
Hope this doesn't add to the confusion surrounding video file formats.