When you want to burn an AVI movie to DVD with a separate subtitle file (like .srt), you are normally forced to first properly encode the movie and then mux the subtitles over it.
You can save yourself a lot of time by installing the excellent Perian QuickTime plug-in. If you open a .avi (or .mkv for that matter) in QuickTime, Quick Look, or any other program that will call the Perian codec through QuickTime -- and you have a subtitle file present in the same folder as the .avi file -- you'll see that Perian will show the subtitles automatically.
You can also use this in Toast, etc. and burn an AVI with subtitles in one shot.
Mac OS X Hints
http://hints.macworld.com/article.php?story=2009041214334739