Sorry if this is a few days too old, and if you have already figured it out!
There are a few ways I have discovered to stream avi's in Linux, and with VLC.
The most simple is to change the web server's mime type for avi (or other) movies, e.g. for lighttpd, edit the config file to include:
mimetype.assign = (
".html" => "text/html",
".txt" => "text/plain",
".jpg" => "image/jpeg",
".avi" => "application/x-vlc-plugin"
This is assuming that you are using Firefox with the VLC plugin installed (not installed by default when installing VLC). This method will stream the avi, but also has the drawback that there are no controls, and the movie just plays in fullscreen when you click on it (no way to pause--all you can do is click 'back' in Firefox).
You can also write html with properly formatted links to the files, using the same mime type "application/x-vlc-plugin" or equivalent IE ActiveX control. This method is illustrated in great detail by a website I am not allowed to post on this forum until I have made one post-- see next post. This site shows how to deal with both IE and Firefox.
The third method (that has nothing to do with Linux) is to just open the URL of the movie in VLC. Goto "File"->"Open Network Stream...", click on "HTTP/HTTPS/FTP/MMS", then enter the URL to the right. Optional caching is available below, before you click on "OK" and open file for streaming.
The fourth method is to install Jinzora on your web server. It requires LAMP, and transcodes your files for streaming if needed. Probably has a lot more overhead than the previous methods. I don't know how easy it is to set up...but probably works with a lot more than just VLC.