It's possible to write a program which multitasks well, but also churns really hard if you're not doing anything else on the PC.

Note that I said "possible". It's not common to find one, though.

If the Windows Media Encoder is grabbing 100 percent of the processor when you're idle, it's sounds like it's doing the best it can do. The fact that you can surf in the foreground without a serious performance hit is a bonus. Actually, I'm surprised to learn that Microsuck was actually able to write a program that multitasks well (considering major parts of the user interface can't even do that after all these years).