AVI is Vegas' default format. However, AVI is simply a "wrapper" for many different codecs. Apparently the particular AVI you are wanting to use is using a codec that is not on your system. What's the source of this particular AVI file?
It came out of my digital camera. How can I find out what kind of AVI it is and is there a way to change it.
I can open it in
Windows Media Player
Quicktime
Mac Movie Maker
On the VASST page, you'll find a Vegas FAQ. There are links to 4 different codec providers, 2 of which are free, that will allow you to open avi's containing mjpeg videos, which is likely what you have. Look for the question about opening AVI's from still cameras.