In VirtualDub, you select the Video menu, then select “Full Processing mode”.
Next you choose the “Compression” you want to use, from the list of codecs installed on your machine. (Try to select “Xvid” - if it’s not listed, you may want to download and install it. It’s a free codec.)
Once you select your compression codec, there will be a “Configure” button which will let you set up the codec and set the aspect ratio you want on your output video.
When all that is set, just save the new avi from the file menu. (Note that depending on the size of the avi, it can take a couple hours or more to re-encode and save your new avi.)
Hint: If your video is a large one, it’s best if you just crop a small 2 minute section out of it and test your conversion on that smaller section–which will convert in a few minutes. If the end result is what you want, then run the same conversion on the large/complete avi.