Your Co-Worker is right, you can burn .AVI files (As data) on a media and SOME new dvd players (That now supports DivX / Xvid) will play them without convertion.
Just like when DVD players started to support MP3 files.
Burn as data, play the songs.
If you have an older DVD player, that is *NOT* ready for DivX / XviD, you will need to convert those .AVI files to DVD Format with convertion tools.