PS3 can play AVI files with Motion JPEG (Linear PCM) or Motion JPEG (u-law). If your files cannot meet these two conditions, PS3 cannot play your AVI files. Check that first.

In order to solve "PS3 Cannot Play AVI" issue and play various AVI files on PS3 freely, a recommended solution is to convert AVI files to PS3 supported MPEG-2, MPEG-1, MP4, DivX, WMV, Xvid with AVI to PS3 Converter.

Good luck!