Simple Fix to a simple issue, Make sure you have downloaded K-Lite codec pack, Google it, very easy to find and download.
Quick steps to solve this issue
1. Make sure you have your audio set too PCM not M-peg1
2. make sure you have the K-lite codec pack installed
3. Done.
Sony Vegas should now recognize your .avi, also the file sizes are still small and Sony Vegas will still compress the files.
![](https://i.ytimg.com/vi/Tp94_ccJN9g/maxresdefault.jpg)