Xbox 360 not transcoding .avi files

According to Xbox 360 specifications, video formats supported by Xbox 360 are AVI, H.264 (.mp4, .m4v, mp4v, .mov), MPEG-4 (.mp4, .m4v, mp4v, .mov), and WMV. Not sure why your AVI files cannot be played on Xbox 360, my solution is to convert AVI to WMV which is video format I used, it worked for me.