DV AVI will output an exact copy of the video you fed to your PC using your DV cam. The data rate of DV video is 3.5MB/sec, so yes, the file sizes are huge. But if you want to edit the data later, it's the best format to use.
If you want a visually lossless quality (in practice the conversion will be lossy, but the naked eye can't detect that), then save as DVD compliant MPEG2. That way all you ever have to do is add your video to a DVD authoring app and burn the VOB files (no transcoding to MPEG2 necessary).
I would advise you reconsider the use of WMV. WMV8 would be 100% compatible with all win XP boxes out there, and WMP would prompt for an update on just about anything after NT or 95 (i think). The use of Xvid or DivX is admorable though
As for the quality, well that's a subjective thing. Just bear in mind that download quality invariably means reduced quality! Again, depends on how big you want the download to be and how long the video!!!