God dammit.
You're going to need to convert the .avi first. Download Easy H.264. You can find it on Google. The reason you need to convert it is because well, it's a loving .avi. It may come out corrupted if you edit that in Windows Movie Maker. After you convert it to something better, use WMM to divide it into parts yourself. No program or anyone is going to do this for you, stop being lazy. Afterwards you can do whatever the hell you want with your clips.
You're not using WMM to edit anything. Just divide the video into clips, that's what it's good for. You already have the tools right there, stop complaining.