Open the original AVI file in Windows Media Player and see if you are able to seek to any random position. If not, then the AVI file is not indexed and hence cannot be edited.
To fix this problem, we have to make the file seekable. You can add the AVI file to the timeline and without editing it further make a movie to a temporary AVI file. Use this AVI file for all further editing.
Alternatively, if the file is seekable then try making the movie in other formats (like AVI or MPEG). You can later try to convert this file to WMV.
You can also try using the Digital Media Converter which has a media file repair utility. You can download Digital Media Converter from the following link:
https://www.deskshare.com/download_details.aspx?ID=18