You're right,compression does play a huge part - both are lossy compression. The xvid codec used for the majority of AVI's are usually between 700 and 1000 megabytes a movie (at least the ones from torrent sites anyway) and the MPEG 2 compression used for DVD's can be one hour, 90minutes or even 2 hours per layer (4.7 gigabytes). Most commercial DVD's never use the 2 hour/layer compression scheme as it starts to become very blocky. So as you can see, a 2 hour movie uses a LOT more space on DVDs (especially with the 8 gig dual layer discs that are ubiquitous nowadays) so the quality is much higher than some AVI file.