Looks like your CPU can't keep up trying to encode 1680 x 1050 and play WoW at the same time. Try bumping your resolution down to 1280x720 and see if that helps.
When ever "Number of frames skipped due to encoder lag" in the log file isn't 0 then it means your CPU isn't keeping up (yours was 1.67%).
Under advanced settings you can try changing x264 CPU preset to superfast or ultrafast, will lessen the quality but will also lessen the load on your CPU. If the quality gets bad try bumping your bitrate from 2500 to 4500, your internet connection can handle it ;)
You Horde or Alliance? I hear you can only stream smooth if you're Horde! lol.
-Jamie M.
