What are you using to play the AVI? If it is WMP then you should be able to fast forward or use the slider. However if the AVI is a rather large file the how fast WMP depends greatly on system speed and performance.
Converting the Movie to Mpeg2 will have little degradation of quality but vastly improve system response to controls. Converting to Mpeg1 would be OK to but the quality will be decreased if you are viewing on large screens such as a television. If you are burning these videos on SVCD for play on a Home DVD player then you will need mpeg2.