A cleaner result can be obtained by using the free MPEG Streamclip. MPEG Streamclip allows for saving an AVI container under the MOV or MP4 container formats, which are supported by iTunes. To get an iTunes-friendly video, we will just have to open the AVI file in MPEG Streamclip, and select the option FIle » Save As to create a new .mov container. The new file will include the same streams as the old AVI container, so no transcoding will be performed (and thus, quality won't be altered).
As long as the codecs used in the streams contained in the .mov files are available for QuickTime, iTunes will be able to reproduce them. Also, streaming to other iTunes is supported, provided the library is shared in the local network, and the user receiving the stream has also the required codecs.
I haven't tested the AppleTV streaming, but it seems it will probably not work, as AppleTV-embedded version of Mac OS X has few codecs available (i.e.: it will only reproduce H.264 and MPEG-4 streams). Consequently, .mov files containing XviD or DivX streams, for instance, will not work in AppleTV.

