For DVD authoring, which is what you're referring to , I like DVD Lab (Pro).
As regards to splitting the movie, well I've found that anything under about 2:30 will still look fine when compressed to DVD-5 (4.7gb). For this I use DVD Shrink as it's free but others like CloneDVD2. Compression does not necessarily relate to pixelation as this is usually down to a poor quality burn.
If you really want to split over 2 disks then cut the avi file in half first & encode them separately. Virtualdub & many others will do this. www.afterdawn.com & www.doom9.org are good sources for free software related to this subject.
There are also guides on this forum (Video Edit Software) which make for good reading.