I have the K-Lite Mega codec pack installed and recently I installed the new PowerDVD 7. Now PowerDVD 7 doesnt play .avi files and I read somewhere that its something to do with FFDShow. PowerDVD 6 used to be fine, but the update seems to break something.
Ok since you installed codec first- try uninstalling PowerDVD 6 (IF you can) and uninstall codec pack and then install it again. See if that works, btw VLC is small and easy to use.
I'll try it sometime, I expect that will fix it, but for now I'm liking using MPC for .avi files and using Power DVD for DVDs :P
I know VLC is good aswell! But I'm sticking by MPC (for now), plus the real + quicktime "support", that was the reasoning in downloading the codec pack in the first place.