Does anybody know where I can find a c++ object oriented library for my c++ project where in short I can set each pixel on each frame to a specified color and saving the result to a .avi file preferably compressed.

I know this sounds simple in theory but I have googled not just for avi but for many codecs and found nothing. Anybody with greater knowledge know where I can find such a library?

Look at the source code for ffmpeg - the universal / Swiss-Army-Knife of video transcoders. They have code to manipulate just about any video format. FYI, avi files are not a standard - they are containers for other formats. The embedded video can be any one of a number of actual formats including mpeg4, etc. Read this article for more information: http://en.wikipedia.org/wiki/Audio_Video_Interleave