Hi,
You're right. The computer do all the job and send data in the raw format for the display. I send bytes via serial port. Arduino just read each byte and send it to the display.
As I said, it's just for fun. Not a big work. But it was funny to learn how to display on this matrix.
I'll send Arduino's code here. I don't have it here. Sorry.
For AVI->image conversion, you can use for example ffmpeg (http://www.ffmpeg.org) :
ffmpeg -i foo.avi -r 1 -s WxH -f image2 foo-%03d.jpeg
Frederic