First off, if you can afford DVDs there is no reason at all
NOT to go buy a copy of Magix or Vegas. Hell, from time to time you can find older coppies on clearance! I have picked up old coppies of Ulead Media Studio for around $20 at walmart before.
Which cons do you want to enter? The reason I ask is because many cons will not even accept vidoes with subbed footage or otherwise downloaded footage. I have even had a few con reject my King of Spayn videos because they use footage from other AMVs. That is a big no-no, but in my case the entire contest (KoS) requires the use of other peoples footage.
As for output and conversion WMM has plugins abd d/ls that allow for AVI output, specifically for mpeg4 and compliant. I use EO-Video to convert wmv and swf alike to mpeg4, but it not free.
As for here is a nice site to help with all sort of encoding:
blaugh http://www.animemusicvideos.org/guides/Free really is a misnomer. No one in the AMV community that uses free appets has ever made it far at all. On the other end of the spctrum however one of the most remound (and over done) AMVs to date was done not with After Effects or premiere, but with Magix. An appet 1/20 the cost of Adobe products.