It's recommended that you don't render to an avi... for a couple reasons:
1. If something crashes or freezes, you lose it all
2. I think avi's tend to be very large files
3. You have more control when you have the individual images (e.g. you can re-render part of the sequence

So, render out as tiffs or something like that and you can combine them in premier, after effects, quicktime (I think) or any number of programs. I think there's a few free downloadable tools too.

As for options, open up your render globals window (button looks like a clacker board with two circles next to it)

Hope that helps.