Flattery will get you everywhere
but I can assure you I'm no expert.
All I described above (and what you've done) is the standard, normal - even "default" way of doing it. It's difficult to know where you strayed from the path and introduced unnecessary complexities.
But I'm delighted you can now produce a decent avi.
I would now create a new project and import the avi you've just created (you could work from the same project, it's just the way I prefer)
Now render as Windows Media Video (wmv)
Constant Bit Rate (CBR)
Bit Rate 3Mbps
I'd suggest for starters you use Keep Original Size. I've been using one of the "High Def" settings, but this is to get the "HD" setting on YouTube. Most importantly, I can do that as my footage is all widescreen - I'm not sure whether it will pillar box yours (desired in this case) or stretch it.
It will certainly produce a file which is small enough and should be visible on all PCs without the need for anyone to download stuff.