No, it's not already a VCD because it's an AVI file. Needs to be an MPG for VCD.
But usually TMPGenc would work to make it an MPG. Since it's saying "unsupported file" and it shouldn't say that about a typical AVI file, there might be something wrong the with file. Or the AVI format may be just very unusal.
As for what to do about it. I'd keep trying various software to see if anything could open the file. I'd suggest you try to open it with Virtual Dub. If it will open the file, then I'd set both the audio and video to DIRECT STREAM COPY (that way there's no unneeded compression and no loss of quality) and then just save it as an .AVI file. This will hopefully produce a normal, quirk free .AVI file that you can then open with TMPGenc and save as a VCD ready MPEG-1 (or 2). . . assuming that's your goal.