You need an MP3 encoder correctly configured. In Windows XP, that used to work our of the box (but by default with poor bit rate). In 64bit Windows 7, it didn't work our of the box. By tweaking the registry and correctly register the Fraunhofer Professional MP3 encoder, it now works like a charm for me.

See http://www.pgmusic.com/forums/ubbthreads.php?ubb=showflat&Number=276026#Post276026 for information on how to register the encoder.

Good luck!

/Björn