First to solve a common problem I’ve seen alot on these forums. You must have your player plugged in before smc will convert any video. That is why they convert button is not lit up.
The second is, after reinstalling windows and installing the newest version of smc, it would not convert avi anymore. In windows 7 the player would get stuck at 0% conversion, in windows xp I would get a message about not having the codec installed even though it was and I could play it on my computer. I converted the avi to wmv and it worked after that. I had an older version of smc laying around and installed that, avis worked again. I don’t know if the new version is bugged, or they stopped supporting avi.
So you either need to convert your avi’s to wmv or another format or find and install an older version of the smc player. I think my version that works with avi is 4.236 instead of the new version 4.256. Hope that helps, it was a pain figuring that out myself as I couldn’t find anyone else with a similar problem. I originally thought that it just wasn’t compatible with windows 7, but it is.