It's probably not lying to you. If you are playing songs in WInamp, are they WMA files? If so, then they are probably not making it to the DSP path in Winamp and therefore not being encoded to your stream. Try some mp3 files and see if you get different results with those.
Trying to broadcast with WMA files is a known DRM problem with streaming. Further related information can be found in the following location:
http://www.streamerp2p.com/forum/viewto ... hlight=wma
It is also rumored that http://www.soundsolution.it
has a WMA input plugin for Winamp that doesn't have this problem. I've not checked in some time on it's availability though.