I heard back from Naxa support. they said

"You will need to contact technical support for the software you are using."

in other words, it's Sony's fault, not ours.

Sony is not involved here, maybe you mean Magix.
In my opinion its your problem using a cheap camera that uses a very old codec that most modern NLE's don't have supported anymore.
Thatswhy you have to seek a way to install that very old codec for this editor to use it and otherwise you have to convert your video's before bringing in to the program.

Yes, if Mainconcept is not the solution, the next best user-friendly, but lossy choice is Handbrake.

i don't want to use something that is lossy....

Well then, Gary, the NEXT-BEST LOSSLESS, BUT NON-CONSUMER FRIENDLY SOLUTION IS FFMPEG, because unlike Handbrake, it does not force you into a lossy encoder 😮

I'm not entirely sure what your peer expectations are here, but best of luck with your codec, which is circa Win 95.

This is an area which I happen to know like the back of my hand. Legacy solutions used to include Mainconcept, Morgan, PicVideo, and of course the legendary Zoran/Phillips hardware encoder (which would bust Macrovision). Not much interest the last several years, I'm afraid.

@gary-beckwith 
Having Morgan M-JPEG installed your AVI file works fine both in Movie Studio and Vegas Pro.

@gary-beckwith 
Having Morgan M-JPEG installed your AVI file works fine both in Movie Studio and Vegas Pro.

Marco - presumably it doesn't "show up" anywhere, it just does its job?

Eric, the decoder does it's job silently. The encoder, as expected, is a custom selectable AVI renderer, just like Huffy, Cineform, UT, or any of the other third party vfw renderers still out there.

Thanks. that's what I thought Musicvid. I wonder why it doesn't work for Gary? It works for Marco.

It seems Gary did not yet test Morgan M-JPEG.

Gary doesn't want to pay for codec support that his camera maker was too cheap to license. [Edit /] But it has provided an opportunity to update the options for this particular type of legacy AVI file:

-- ffmpeg (free)

-- Handbrake (free)

-- Morgan (€20)

-- Mainconcept demo (32 bit Vegas)

-- PicVideo ($30-60)

-- AviDemux, AviSynth, VLC, VirtualDub (untested, but worth trying)

-- Zoran (h/w win 98)

-- various medical encoders ($$$$)

Any others? I'll add 'em to the list.

My solution: take the $50 camera to Goodwill and get one that shoots avc.

wow MusicVid, I feel attacked... to put this in context, the camera was a gift from my employer for working there for 3 years. they gave me a catalog to pick something from. so yes, I was trying to avoid having to pay for a codec for a gift... How would you feel if your employer gave you a gift in "appreciation" for working there, but you had to go out and buy something to get it to work? Anyway I have other cameras and I don't really need this one but it is completely useless if I can't edit the videos. And there are some videos I shot on this camera I would like to process. the other thing is that I have trepidation paying for a codec/software when I'm not sure it's going to work. I don't think it is such a horrible thing to be searching for a free solution to this.

the update is that I tried Handbrake and it did the same thing that Windows Movie Maker did. I exported a mp4 file and curiously, the video and audio portions of the file are not the same length. it appears the audio is the correct length and the video was condensed to about 4/5 the actual length. with Sony Movie Maker I was able to ungroup the video from the audio, stretch the video to the same length, and then I just had to slide it over a tiny bit to sync it with the audio.

this will do for now, but I think I will avoid using this camera from now on, but at least I have a solution if I do use it.

thanks everyone for helping.