OK, I gave it a shot.
I don't see it playing as a stream in: FF v7.0.1; IE v9.0.8112.16421; or Opera v11.52.
It does, however, invoke the download manager and allow you to save it. (Opera blithely downloaded it in the background since I forgot to cancel and it invoked VLC about 20 minutes later when it was finished.)
Maybe it's something with your file being an AVI? Or the way I've got my browsers set up?
I have VLC v 1.1.11 set as my default media viewer. But switching it to the current version of WMP resulted in the same behavior running under Win7-SP1/32-bit.
Be interesting to see how an MP4, FLV or a MOV file might be handled.