I had a project recently that had requirements similar to what you are describing, and I went with s3 + zencoder, and it worked wonderfully. This was my first time working with zencoder, but I've used s3 a lot.

What I did is send movie uploads directly to s3 via swfupload so my Rails app isn't tied up with uploads. When the upload is done I use a JS callback to set the location of the uploaded file (bucket and path) in a hidden field that gets set in the ActiveRecord model when the form is submitted. If that attribute is present at creation time, a call is made to zencoder to start the encode. Then I use flowplayer to show the encoded videos.

It's a straightforward implementation, and it works well. I've been pleased as punch with zencoder, and I'd definitely recommend them. You might also want to look at http://www.pandastream.com/ ... it looks like a great alternative, but zencoder's pricing was a better match for this project.