Two things:

1. You are running this on Windows, which is probably not supported as the server requirements specifically state that you have to be running on a linux server. However, this fact is more than likely not your problem.

2. Mencoder is exiting out. This is most likely due to an error. I don't have a an installation on Windows so I can't test this out for you, but I suspect that the problem is going to be in the conversion code that is used. If you notice here:

Code:
CONVERT COMMAND: C:/wamp/bin1/mencoder 'C:/wamp/www/video/blair-1.MPG.mpg' -o C:/wamp/www/flvideo/1220987201842051896.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
This command is what is converting your video from MPEG to FLV. What I would do is from that machine, open a command prompt (Start--RUN--CMD) and type in the above command (or just copy and paste it) and see what happens. If it gives you an error, then you have some place to start troubleshooting. I'm not 100% certain, but I'm suspecting that the problem is going to be in the fact that there are single quotes being used above ('C:/wamp/www/video/blair-1.MPG.mpg'). Single quotes work fine on UNIX-based systems (such as Linux). On Windows, however, single quotes are not used. Rather, Windows uses double quotes.

Here's something to try:

Open up your video_conversion.php file (it's located in the includes/settings directory). Under the mplayer sections, find the part that says

Code:
'$video_src'
Replace that with:

Code:
\"$video_src\"
And give it a try.