yes, kind of. What you need to is DVDdecrypt the entire DVD to vobs on your hard drive. Look at it in IFO mode, and look at the chain which represents the movie. You need to demux this from your vobs, then replace it with Vobs for your encode.
I don't know the specifics of how to do the demuxing, but yes its possible. You need to get your hands on a program that can strip and rebuild dvds.
Have a look @
http://www.doom9.org and
http://www.dvdrhelp.com , the info you need will be there somewhere
The avi will look crap if you mean you want to re-encode that to MPEG2 btw.