In Mac OS X if you want to burn an AVI movie to DVD with a separate subtitle file (like .srt) then you need to properly encode the movie and then mux the subtitles over it. It takes a long time you can save yourself a lot of time by installing the excellent Perian QuickTime plug-in. Perian is a free, open source QuickTime component that adds native support for many popular video formats. If you open a .avi (or .mkv for that matter) in QuickTime, Quick Look, or any other program that will call the Perian codec through QuickTime — and you have a subtitle file present in the same folder as the .avi file — you’ll see that Perian will show the subtitles automatically. You can also use this in Toast, etc. and burn an AVI with subtitles in one shot.