This is how I watch subtitled .avi on my PS3.
Sadly, there’s no AVIAddXSubs for Mac, and I couldn’t find any replacement1. So I tried to run it using Wine, and it works just fine.

It’s X11. Fonts are ugly. It’s not very small. First launch is slow, but have faith, the main window will appear.
BUT if you can handle all that, you’ll be able to add soft subtitles (as in, you can turn them off if you want) to 40min .avi files in two minutes or less. No reencoding at all. And the output file works on the PS3 flawlessly. Multiple subtitles on the same file are supported too (up to eight).
Wanna give it a try? Get AVIAddXSubsSC.dmg (68,7MB)—unless you already have Wine, then I’d suggest AVIAddXSubs.dmg, a smaller package (15,5MB) without the embedded Wine.app. Both packages have AVIAddXSubs version 9.5.
If you need help using the app you can go to the AVIAddXSubs’s webpage. And when watching your converted files, don’t forget to turn the subs on using the triangle menu.
1 The best 2nd option I tried was using mencoder (post in portuguese) but it wasn’t as fast and subtitles are burnt in.