Depends on how demanding you are, and the size of your screen. If your AVI converted to MPEG2 (DVD) is under 5 GB, it will compress with no visable loss of quality. I would use NeroVision to create a DVD with DVD-9 as the target size. Then import those files into Recode and shrink to DVD-5.
Thee are better tools for converting AVI to MPEG2, and there's a whole forum here on doing just that, but NeroVision will do fine for a beginner.
There's no hard rule on how much you can compress, it really depends on the bitrate (quality) of the source material. 80% is too much for some, and 60% is passable for some.