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An updated version, Windows Live Movie Maker 2011, was released on August 17, 2010, adding features such as webcam capture, support for high-definition video, the ability to upload videos directly to SkyDrive and Facebook, and the ability to add media files stored on network shares to projects.
Movie Maker supports DV-AVI files from a standard definition DV camcorder. But it technically doesn't support other file types with the .avi extension. The full list is given here: File types compatible with Movie Maker. You can submit feedback on Movie Maker from the link in the program. File > About Movie Maker > Send feedback to the Movie Maker team