I can still not get encoded audio out to work in VLC. I'm specifically testing this with my MKV files with encoded output and avi files which I don't know if they have encoded output or not. I can only get audio by disabling the audio track and enabling it again. When I do that I get audio and I'm able to select encoded out. When I do I get a log error after VLC beach balls.
here is the crash report.
using 1.1.11:
http://pastebin.com/exSk31qn
using latest nightly build 1.1.12
http://pastebin.com/wPe7yLZY
oddly enough I can play my mkv files just fine in Quicktime with perian. of course I have no option for audio out, but I don't have to disable and enable the audio tracks to get it to work.