Can this AVR MCU with 5V I2C work with this sensor with 3.3V I2C?
From the datasheet for the ATmega128:
ATmega128 datasheet



The input High Voltage can be a minimum of 0.6 of Vcc. If you have your ATmega128 running at 5V, the minimum HIGH input is 3V.

If you want to be safe, try googling "3.3V to 5V level shifter" and you'll get lots of resources for creating circuits to use.