I have the same problem with my WDTV Live Plus. (Latest firmware)
All my MKV videos stream fine (720p & 1080p). But every 720p/1080p AVI i have are not watchable. They start out fine but within minutes the sound stops and video shutters.
I access all my videos via the network share option. They are shared from a 1TB WD Green HD. PC is a Core2 Duo /w 8GB ram running Win7 64bit Ent and the PC / WDTV are connected via a non-managed gig switch.
I cant see it being a bandwidth issue as the 1080p MKV all work fine.
Edit : After doing some more digging, I found out it seems to be a common issues with a lot of AVI’s. Going to use Handbrake and try a recode to see how it works out.