Most modern video is 16:9 (widescreen). If you force it into a 128x160 box, it might look "squashed." Look for a "Pad" or "Black Bar" setting in your converter to keep the original look of the video.
Since AVI is an older format, is the most reliable way to convert it without compatibility issues. It is a command-line tool but is very fast. avi 128x160 converter