Video conversion from .avi to .mp4

Now that I am resigning to the fact that the bright decision of Apple is to only allow playing of one format, which is the best tool to convert avi and mkv files into a format the intelligent iTunes and AppleTV can work with?

Tried Handbrake. It doesn't recognize .avi files as "Source" (Command + O). Does nothing. Insists on working only with DVDs.

Tried VisualHub. This works and converts mp4 file, but that file is not recognized inside iTunes.

Now what?