Transcode 360 choppy playback - stutters and pauses

I recently went watch a movie on my xbox 360 using MyMovies and Watch Stream, which utilizes Transcode 360 to encode the movie. The movie kept pausing and stuttering. It was not a CPU issue. I stopped the transcode service on the Media Center (a reboot of the machine will accomplish the same, getting it to stop transcoding), opened the Transcode 360 Configuration Utility and on the left click on Advanced. On the right, at the bottom I checkmarked 'Downmix multi-channel AC3 to stereo MPEG audio' (I had it unchecked from some previous testing I was doing). I then started the Transcode 360 service (if you rebooted you don't need to do this). I then tried that same movie and it played very nicely. No stuttering or pausing.