I gave up on Nero in its last incarnation, so I can’t help you with Nero 8. I burn all my video files with a free program called ImgBurn. While you wait for someone with experience using Nero 8 to chip in, you should download ImgBurn and try your files with it.
In E-Z mode (which is the mode it will start in) ImgBurn offers you the choice of writing an image file to a disc. Choose this for your ISO.
For your avi file, choose Write folders/files to a disc.
Set your burning speed, make a title and go to it. This should work with no problems. You can download ImgBurn for free from here: www.imgburn.com and you should look through the guides to its use at their forums: http://forum.imgburn.com/index.php?showforum=4
It doesn’t do everything Nero can…it won’t convert avi to dvd or compress size, but ImgBurn is a fine program for burning and working with ISO’s and even regular files.