Hello,
For anyone interested, I've written a little application that streams
music from your home directory and does transcoding on the fly for non-
mp3 formats using FFmpeg.
It is still very much in a rough state, not Cabalized or anything yet.
It is available at
http://code.google.com/p/solanin/ and requires
Sound.TagLib to build.
Note: There is a bug(?) currently in happstack,
http://code.google.com/p/solanin/,
that prevents transcoded streams to be sent lazily. You'd need to
manually patch happstack to fix that.