my error log says "[29-Mar-2011 11:58:06] PHP Warning: Module 'ffmpeg' already loaded in Unknown on line 0" not sure if this could be the problem
The "Error generating MP3 file!" usually is a sign that something is wrong with your FFmpeg installation, and the above error message seems to reinforce that.
My best guess is that you already have FFmpeg loaded on your server.
See this forum thread: http://motionmods.com/forum/topic?id=690&p=5467
Do you have a copy of FFmpeg already installed in the user/bin/ directory? (Also, how are you running PHP -- what is your server configuration?)
Edit: BTW, I had no problem grabbing the MP3 for that video....