Your .avi from Premiere should be full resolution for best results in Flash. The file will be huge! Flash will create a new .swf or .flv file 320 x 240 and any size (bitrate) you need. The large uncompressed clip will no longer be needed then.
.m2p files are Mpeg 2. Converting them back to .avi and then converting them again will cause poorer results, but Premiere Elements can do it, so can Procoder.