I have been at this all afternoon / night and can't get this figured out.
I've followed the instructions to the T and can't get it to work.
At first I was using TVersity 1.9.3 which is the latest version. In this version you don't have the option to un-check the codec pack install, so I was uninstalling it after install and cleaning the registry etc.
When that didn't work I found the 1.9.2 version which allowed me to de-select the codec pack on install, I really thought that that would make the difference, but had no luck.
I have set to transcoding all the time and set up a folder with the same setting.
I have set up the password etc in services console.
The only thing I think it could be is that I'm running 64bit Windows 7 (I haven't tried jetboy's solution yet cos this is the one that seems to work for everyone) also I'm using a Mac Book Pro and BootCamp but I'm sure that's not relevant.
(BTW is KLM K-Lite Mega??)