Make sure the movieis an AVI motion JPEG clip. You should have already transfered this video to disk via image capture (in your Applications folder). 
Open the file in QuickTime and hit (Command-I) to bring up the information on how this file was encoded. Example:
Easy Solution
- You should be able to take this AVI movie that is encoded with Motion JPEG and drop it right into iMovie .
Related:
Using MPEG or DVD footage
Using MPEG movies from a Sony Cybershot
