Sigh!!

AVI is really only a distribution or carrier description which can be used by a variety of video formats. True or uncompressed .avi is huge -- around 65 GB per hour of video. Then there is DV/AVI which is compressed and runs to around 13 GB per hour. But at the other end of the spectrum, there are some highly compressed mpeg-4-like formats such as DivX and Xvid which also use the extension .avi.
Hence my sigh at the outset. Telling us you used .avi video in effect is telling us nothing. You will need to right click on one of the files within Video Studio and copy down its properties.
However, I am almost willing to bet it is video which uses the XVid codec, while the video from the internet you mention is probably DivX and the video from your son's camera may be MJPEG....
I say this because it appears that the "error" message you are receiving relates to the XVid codec and not to Video Studio. Moreover, it only appears when you are trying to re-encode or convert the XVid .avi as you are obviously planning to do with Video Studio. As you already know, you simply remove the first frame which is the easiest way to move on from that message. In fact, in other forums, there is even debate as to whether it can be described as an error message at all.
And if you look, say, at
http://forum.doom9.org/showthread.php?t=71799 you will see another suggestion for going into the XVid control panel and changing the bframe setting from 1 to 0...
And there is another suggestion at
http://forum.digital-digest.com/archive ... 6-p-1.html which suggests the use of a third party program called AVI FourCC Code Changer to change the internal descriptors in the XVid file to make it appear like a DivX or other file. When you use it, then reopen the file in, say, Video Studio, you should no longer get the bframe message.