ANSWER:
The Packed Bitstream AVI fix
ONLY works if you use the latest XVID codec and not ffdshow's xvid decoder. It works then.
From the other thread
http://forum.doom9.org/showthread.php?t=145262
Quote:
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Always use packed bitstream with avi and use xvid to decode instead of ffdshow. Unticking decoding xvid in ffdshow (both vfw and non-vfw) and installing the latest xvid makes the problem go away.
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