First, Zune (or iPod) is just a
portable media player. If you want to archive your DVDs and watch them on your 40' HDTV, you probably should use a HTPC or something. (Then you don't have to convert your avi files.)
Anyway, I assume you are interested in Zune 80, so read the video support
here.
It supports 720x480 up to 30 fps (or 720x576 up to 25 fps), so I would rip/convert
original DVDs to 720x480 if quality is important.
If I had to transcode avi files, I would use the same frame size and rate as the "original".