Honestly, if you're building a media center and using a Mac, I'd look at using Plex for the front end - and this is why:
1) Plex can play video from MANY more containers (and codecs) then what Quicktime and/or Front Row can handle without requiring Perian to be installed.
2) Plex has an ideal front end interface, and if you setup your video folders correctly and properly name your files, if they are associated with movies and/or TV shows, Plex can scrape information, box covers, fan art, etc. and display it for the given category.
3) Plex can through its own interface connect to SMB shares without having to first mount a drive within OSX (this can be very convenient if you have a central storage in your home where you keep your video for multiple systems on a network. Most of my video (except for some high bitrate HD footage) is stored on a drobo that is connected to my network via a droboshare unit)
4) If you're hooking a mac up to a home theater receiver with optical audio, if you have containers that have ac3 or dts sound (and assuming your receiver can decode the respective format) Plex can pass-through AC3 or DTS from appropriate container files (ie: if you have a MKV file with DTS sound, and a DTS capable receiver, it can pass the audio through)
5) If you have some things that can only be played in Front Row (ie: video you've bought thru iTunes that contains DRM) Plex can launch Front Row for you to access that video, then when you exit Front Row Plex will re-launch itself.
6) If you have files that contain soft subs (ie: subs that are not "burned into" the video, but rather either text or pictures that can be selectively turned on/off (on AVI's you wouldn't as I've never seen an AVI that can contain a softsub (although it might be possible to have an external .srt file associated with an AVI)) Plex can easily display them.
7) Plex has its' own compensation for overscan so if you have to set overscan when connected to a TV and you normally loose top/bottom/left/right portions, you can adjust the viewable region within Plex to make sure you're not missing any of the video.
8) well, there's many more - I'm sure you get the picture
But, if you are planning to convert from AVI to mp4 (or you have no desire to setup a home theater system like it sounds you want to do), you probably aren't going to be using the same video codec when converting from avi to mp4. I'd start by finding whatever bit rate the avi is at and start with that as the average bit rate on the transcode within handbrake; also might want to do 2 pass encoding. It also couldn't hurt to look into using mpegstreamclip which would also allow you to save the video as a .mov with other video codec options that might generate a better output.