I have the exact same problem. It either gos back to step #1 or it shows this error,
Fatal error: Cannot instantiate non-existent class: ffmpeg_movie in /.....

The host checked and reinstalled,
/usr/bin/flvtool2
/usr/local/bin/mencoder
/usr/bin/ffmpeg
/usr/bin/mplayer

Still doesn't work. The above error occurs here: upload.php on line 223. Tried two movie clips. One mpg and one wmv. Same results on both.