Hooray, it finished!
CODE
Done encoding file "outfile.ogg"
File length: 340m 55.0s
Elapsed time: 30m 59.0s
Rate: 11.0036
Average bitrate: 112.0 kb/s
(AMD Athlon XP 3200+ 2.19GHz 1GB RAM XP SP 2)
Note: this is also why foobar is an option. foobar seems fine with the 3.36GB, and will pipe data to encoders where possible.
You could use foobar 0.9 with the Musepack Converter profile which comes as standard.
Edit: I'm not the best qualified to explain STDIN and STDOUT.
Basically input and output to these encoders is via a stream. A file is a type of stream. STDIN and STDOUT are a type of stream also.
Think of an encoder as a man working in a cubicle. This man paints smarties. It's not a good job but it pays the rent. Normally the man will be given a container of smarties. He will paint the smarties, put them in another container, and pass it on. However, there is a conveyor belt that runs into his cubicle and ends there. Sometimes smarties come in one by one on the conveyor belt - he paints them as quickly as they arrive and then puts them in a container. When the conveyor belt stops bringing in smarties he passes the container on. There is another conveyor belt, that starts in his cubicle. Sometime he is passed a load of smarties in a container and told to put them on this conveyor belt. He doesn't know where the conveyor belt goes and has never thought to ask. This schmo paints smarties for a living and probably beats his wife. Anyway, so he takes the smarties out of the container, paints them, and puts them onto the outgoing conveyor belt as fast as he can go. When the container is empty that's the job done.
Container: a file
Smartie: audio data
Conveyor in: STDIN
Conveyor out: STDOUT
Passing the wave file to an encoder using STDIN is the same as taking all the smarties (audio data) out of your container (wave file) and passing them to the encoder one by one on the conveyor belt (stdin) instead. As it is, a 3.56GB container is too heavy for the man to pick up. He is feeble and made ill by toxic smartie paint fumes.
Really bad analogy, but I kinda got caught up in the moment.

I'm sure someone else can explain it in one sentence. I'm too busy wondering how much a guy who paints smarties would earn.
Edit: Also note that STDOUT of one application can be passed to STDIN of another. In this way you can decode from a lossless file and pass the audio data to another encoder. In this instance the conveyor belt which begins in the man's cubicle (stdout) actually leads straight into another man's cubicle (his stdin). These two men have never spoken but have worked alongside each other for eleven years.
Also, an application can recieve data from STDIN and output it to STDOUT (conveyor in directly to conveyor out).