If you convert it to a different format, you're going to have some generational loss no matter what. However, if you can find a codec that is sufficiently more efficient, it might be worth it. There's a bit of a problem with the .avi file format in that knowing it's .avi doesn't say anything about what's actually in it. .avi is a container format that stands for "audio video interleave." For example, most pirated movies are .avi files that contain DivX or XviD encoded video, with .mp3 or dolby digital encoded audio.
Usually your best bet for low file size with relatively high quality would be MPEG 4 or one of its derivatives (the main two of which are DivX and XviD.) However, these files may already be some sort of MPEG 4 derivative. How big are we talking for "ridiculous?" It's not unusual for a two hour movie to be over a gigabyte at decent resolutions and compression levels, and full 1080P video can be anywhere upwards of 25 gigs. For example, dual layer blu-ray discs, which generally use MPEG 4[footnote]although they can use the less efficient MPEG 2, which is what DVDs used[/footnote], contain 50 gigs of data. Video just takes up a lot of memory.