How do import my avi movie into iMovie? And camera help.

I know that these topics have been posted before and I've searched for a solution to no success. I want to import the m ovies I record on my Canon (Ixus 55/Powershot SD450) into my iMovie. BUt whenever I drag the movie file from my desktop to iMovie I get a bouncing icon and it tells me it is not a valid format. I'm sure I have the DivX codec on my Mac, can anyone suggest why it is not working?
While I'm at it, does anyone know of digital cameras of similar standing that will record mpg and iPhoto will erase the content of once it has imported?

If your DVD's are encrypted, Hollywood doesn't want you to be able to figure out how to copy them.  Encryption is used in all store bought DVD's. 

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