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Avi is one of the most used video extension file. Most of files on the internet are also in avi format.In My Iphone 4 I have install two application for playing avi files.One is Vlc and another one is GoodPlayer. Vlc is freeware developed by Applidium . GoodPlayer is not free, it can be installed for 2.99 $. Here I have screenshot of adding files on Iphone through GoodPlayer.You can graph GoodPlayer from here.goodplayer iphone for itunes