I brought Home Theater PHILIPS HTS3565 but when I tried to play my file "AVI" it says codec is not supported but this file can be played in all of my device except PHILIPS. I have already upgraded it to the the latest software but still it doesn't work. Some of my DVD doesn't play as well

You need a video converter, which can help you convert AVI to MP4 and so on. I recommend you a professional video converter, with this video converter you can convert avi to other format.
http://www.dvd-creators.net/convert-avi/

Greetings - Your home theater setup will not play xvid or mpeg 4 files. The formats supported are MPG 1 and 2, Divx, and WMV .

If you'd like to view any .AVI or .MP4 files you would have to use a computer and re-encode them to a compatible format.

You will find a list of the software and links to download (much of it free) tools HERE that you can use to convert video to a compatible format (MPG2 is always a good safe format that plays on anything).

Good Luck,

Mikeywaf