When I try play avi files with mplayer it says:

Proprietary and free formats
Fedora has the mission of always being freely re-distributable; this means you are free to give your copy of Fedora to anyone else.

Unfortunately, that means that we cannot ship support for certain multimedia codecs, as they require patent licenses before you can view or play media that use them. Imagine if you had to pay a license fee before reading your e-mail, or viewing a picture on the web. This is why Fedora supports free formats, such as Ogg Vorbis and Theora.

However, there are companies and communities that do offer support for certain codecs under Fedora. If you would like to install support, please proceed to see the available options.

and then says I should purchase these packages:
Complete Set of Playback Plugins
MPEG playback Bundle
MPEGPart 2 video Decoder.

And I have to pay for all three???!!!!??I thought linux was free.

p.s. I am running Fedora 9.

You don't have to pay for any codecs on linux.
Go to the following website:
http://www.mplayerhq.hu/design7/dload.html
Download binary codecs package ( x86 or amd64 - depending if you've got 32 or 64bit version of fedora)
After unpacking the file read the readme file, it'll tell you where to put the codecs

You've really not read that right at all. Firstly this is *NOT* mplayer saying this, this is the Fedora modifying the standard mplayer code for their platform. Secondly they're just trying to be morally upstanding, and are not trying to make money for themselves, but telling you to pay the non-gpl license codec owners their money instead. This isn't about Linux being free in the slightest, it's actually a much more political thing than that. a binary codec is NOT linux.

anyway, just use the livna yum repositories and install from there and you'll get all the codecs.