Video Filter Not Working

The filter will have no effect until you've opened the controlf from the clip you've applied it to and adjusted the controls. Have you done that?

Please confirm that you have applied the filter to a clip in the timeline and that you have opened that clip in the timeline and that your are using the controls in the viewer for the clip in the timeline and that the playhead in the timeline is over the clip with the filter. If this is all the case you will probably need to a do full reinstallation of the application.

step by step:

drag the filter onto one of your clips in the timeline
move the playhead over that clip so that it is displayed in the Canvas window
double click the clip (in the timeline) to load it into the Viewer window
in the Viewer window, change to the Filters tab (or Color Corrector tab if applicable)
adjust the settings ...

... do you see the changes happening in the Canvas?

FCE and FCP don't edit DV Stream. It's a format used only by iMovie. It effects the audio and should have no effect at all on the use of video filters.

I had this confusion a few years ago when I was first learning Final Cut Express. I was not first selecting the clip that I wanted a filter to operate on, before fooling with the filters. The filters don't work if you don't highlight (select) a clip first.

In other words: STEP ONE: DOUBLE CLICK ON THE CLIP that you want to apply filters to--that lets FCE know which clip you want to make the changes to. When you double-click on the clip, it appears in the Viewer window. THEN when you choose a filter, that filter will appear in the tabs of the Viewer window. Rip the Filters tab off (i.e. put the cursor on the tab, hold down the mouse button, and drag the tab off) of the Viewer window to form an independent window with it, if you want to, and move this Filters window off to the side somewhere and tweak the filter on it, so you can watch the effect on the video in the Viewer.

Just putting the playhead over a clip and then trying to apply filters to that clip is like making changes to text in a word processor without first highlighting the text that you want to change. Nothing will happen without first highlighting some text, or in the case of FCE, nothing will happen to the video without first highlighting (selecting) a clip.

Your trouble may be as simple as that.

echo

MPEG Streamclip, a free utility, should handle the conversion. Though I've never used it, Streamclip has a batch processing feature.
http://www.squared5.com/

You need to convert your .dv clips to a format with which FCE can work natively. After doing so, you won't be working with the .dv files any more; you'll be working with .mov files. I don't know any way to maintain the EDL info.

A better approach might be to Export the whole project from iMovie so it's FCE-ready, then import the whole thing into FCE and create sub-clips from there. Here are the iMovie settings to use (this is from v6; I assume the same choices are still available in v8):
Export to QuickTime using Expert Settings:
Export Movie to QuickTime Movie:
Compression - DV-DVCPRO-NTSC
Frame rate 29.97
Compressor Quality Best
Audio AIFF @48kHz

The resulting QT file will be importable into FCE.

Why are you trying to work with avi files? FCE uses QuickTime files at specific frame sizes and rates, as has been mentioned before. With all the switching, you have quite possibly goobered up your FCE preferences. Whenever FCE is behaving strangely, trashing the preferences is a good place to start. Here's how to do it:
http://www.fcpbook.com/Misc1

I say that because I just experimented with a dv file exported from iMovie and the filters (Color Corrector and Pond Ripple were the ones I tried) worked fine. Once again, here's the procedure:
Place a clip in the timeline.
Park the timeline playhead in the clip; the clip needs to be visible in the Canvas.
Double click on the clip from the Timeline to open it in the Viewer.
Select Effects>Video Filters> and choose the filter you want to use.

Click the tab of the filter in the Viewer window.
Adjust the parameters of the filter and you should see the results in the Canvas.

If that doesn't work for you and you've trashed your preferences as described above, the next step is probably to uninstall FCE and reinstall it. There's a specific procedure to follow which you can probably find via a forum search.