Further follow-up
I reinstalled the latest 3.0 version (3.0.6190). All the conversions work as expected. As soon as I apply a 3.1 patch (like the one a few posts back), MB won't convert. Watching the status bar it goes straight to copy instead of encoding first then copy. Not sure what's the deal. Are there any other files needed for 3.1 other than what's included in the link you gave me - I'm asking since 3.1 hasn't had an official beta release yet?