If video is not getting converted check the debug log and see what convert command is used.

From your debug log at

http://mallustream.com/youtube/templates_c/debug.txt

Convert command used is

Code:
/usr/local/bin/mplayer '/home/mallustr/public_html/youtube/video/Sooryakireedam1-(2007)_2.wmv' -o /home/mallustr/public_html/youtube/flvideo/11908390311001487273.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
This is wrong.

/usr/local/bin/mplayer is mplayer, the video player.

We need mencoder for converting video.

Try changing "/usr/local/bin/mplayer" to "/usr/local/bin/mencoder" and try converting the video.