Do you still need the capacitors to ground on the XTAL pins on an AVR if the internal resonator is used?
Yes you still need decoupling caps whether the internal oscillator or a crystal oscillator it used.  No, you don't need the crystal caps if you're not using a crystal.

"Decoupling" refers to the caps that go accross power and ground close to the IC.  Their purpose is to keep the power supply stable despite the fast current transients of the IC that the more distant power supply wouldn't be able to keep up with.

The crystal caps serve a completely different purpose.  The one on the oscillator output pin reduces the high frequency harmonics in what would otherwise be a square wave.  It also serves to lower the impedance of the oscillator output line as seen by the crystal.  The second cap (the one after the crystal) is the primary crystal load cap.  A crystal specified for parallel resonance needs a certain capacitive load to hit its frequency within the specified tolerance.  Ideally the signal driving the input of the crystal has 0 impedance, in which case the crystal load is simply the capacitance on the output side.  In practise the driving signal has some non-zero impedance, so the crystal load is that in parallel with the deliberate load cap.