It's strange that Squeeze cannot compress AVI since Sorenson wrote the original codec for it. I think that there was a lawsuit somewhere along the way so that might explain why.Have you purchased the Pro version of QT?
http://www.apple.com/quicktime/pro/win.html
(Scroll down to the bottom of the page for info on exporting.)
Of course you could always go with .MOV, which plays on QT. The free version of Avid DV can make this happen for you. (Check out the tutorials.)
http://avid.com/freedv/
The AVI format is what is generally used on a lot of professional editing systems because the compression ratio can easily be adjusted. For example most video systems require approximately 10 Gigs of storage for every hour--but that is compressed information. Uncompressed the video file is HUGE, and I mean huge. The reason I mention this is because of the difference between the two file formats that you mentioned. It would seem that the AVI is not nearly as compressed as the WMV.
The difference between CBR (Constant Bit Rate) and VBR (Variable Bit Rate) is that CBR write all of the pixels for EVERY frame. VBR on the otherhand writes all of the pixels for a frame--this frame is referred to as a key frame. Key frames appear at a set interval and that interval can be adjusted on better compression programs.
Let's say key frames are set at 30 frame intervals (it could be 40 or even 60 frames). The frames between the key frames are the variable frames since they only contain information for the part of the frame that has changed. If you have someone sitting in a chair talking to the camera about the only thing the variable frames will contain is going to be centered around the head. In this case little information is needed for the variable frames. If instead it is a close shot of someone running it means just about every variable frame is going to have tons of information. What this means to you is that an action genre video is going to be a larger file than a talking head video all because of the variable frames. In comparison the CBR will be about the same file size with either the talking head or action video.
The reason for the two pass is that the software compares every frame with the one before it and after it.
If you are uncertain with compression settings, then go with the default.
At the end of the day my personal recommendation is the WMV file because it seems to be of a higher quality with higher compression ratios. If you haven't already downloaded Microsoft's free Movie Maker it might be something you'll want to check out.
http://www.microsoft.com/windowsxp/downloads/updates/moviemaker2.mspx
