There isn't a dedicated IMG to MP4 video converter. The IMG is actually the format used by virtual discs. Therefore, to convert the files to MP4, you would have to mount the IMG file using Daemon Tools or a similar application and then extract the AVI files in that image.
Afterwards, use Handbrake to convert the AVI files to MP4 without any loss in quality. Handbrake offers a lot of options to customize the output of your file.