There is NO conflict between Avast and the Internet Firewall included in Windows XP SP1. I have both operating without limitation or trouble.
In SP2, it is no longer named the IFW but Windows Firewall. It has some improvements so as not to conflict with other FWs running resident on the same machine.
The IFW monitors and protects against unauthorized INCOMING traffic.
However, if you have installed SP2 and find some trouble accessing sites, then you can adjust the FW behavior via Control Panel. The url of the site can be added to the "accept" list in the FW, or you can just shut it off entirely and go with a 3rd party FW such as Zone Alarm, Sygate, Outpost or Kerio.
Good luck.