Originally Posted by fatherom
it's an overall limitation in the DivX playback on the PS3.
And probably not intentional. As I understand it, the AVI container format itself wasn't originally designed for such large files and has had issues with them pretty much forever. It wasn't much of a problem back in the day because you'd run into disk and filesystem limitations before you hit the AVI internal limits. But now we've got much bigger files and people keep wanting to use AVI rather than migrating to something else, so the AVI format has been modified/extended with things like "OpenDML" to try to cope. The PS3's player code likely doesn't know about these extensions and simply runs into the old AVI limits.
As to what container would be preferable to AVI, I have no idea. There are several newer container formats and from what I've seen such discussions can become heated. The PS3 likely doesn't support them either, in any case; I know for sure it doesn't understand MKV.