You don't have to have VLC installed on the server.
At first you could try to stream via the "direct" profile (idProfile=0) which doesn't use any transcoder.
Probably the encoder used in idProfile=1 (by default "mencoder") isn't installed in the path mentioned in the config file?
Yes, you were right
It would be nice to get this working the same way as StreamTV, I mean the podcast service in VLC. Then it would be much nicer to change channel
Finland