The command you should be using with Mencoder RC2 is:
Code:
$cmd_mencoder = "$config[mencoder] '$video_src' -o $video_flv -of lavf -oac mp3lame -lameopts abr:br=56 -ovc lavc -lavcopts vcodec=flv:vbitrate=500:mbd=2:mv0:trell:v4mv:cbp:last_pred=3 -srate 22050 -ofps 24 -vf harddup";
As for flvtool, turning it on or off is your choice. Basically, the tool creates metadata inside of the FLV file. Default installs of vShare do not have a need for the flvtool. However, if you use streaming products such as RTMP, Lighttpd, or some sort of PHP based streaming, you will need to have metadata in your FLV files.