... and it goes a little something like this.
WinAMP plays source audio, any format, any bitrate. The unencoded wav stream created is then passed to the DSP plugin (Digital Signal Processing) this then uses an external codec (typically netshow from MS cos it's free and linked on the shoutcast site) this re-encodes the stream at your cast rate.
This cast is then relayed to the server (as an http stream) which relays it to clients that tune in, as an HTTP stream.
And that, said the mayor, is that
"My wife once got caught biting the heads off snails.