Since DivX is very highly compressed, which is part of the reason why Premiere can't handle it, it is also to be expected that converting to AVI will greatly increase file size.
Worth trying a short segment to see if that works OK. If it does, then maybe Virtual Dub gives an option to break up the output into smaller chunks? In any event, make sure you have Type 2 AVI (OpenDML is an alternative name) and are using the DV CODEC with a legal (32k or 48k) audio rate to get a Premiere-compatible DV AVI file.
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