Ideal video format for Windows Movie Maker
Windows Movie Maker, being a Microsoft product, works with WMV files using the Windows Media Video codecs.  You can use the free Windows Media Encoder to encode the files.  I believe there is also a free version of Microsoft Expression Encoder that you could use as well.  Expression is a bit newer, but slightly less capable since they moved a lot of functionality to the commercial Expression Encoder Pro (the Pro version is unfortunately not free).