Thanks for DjJustin for researching and finding a solution to this problem.
Uninstall Windows Update KB2670838
This update breaks the way Windows Media Foundation codecs work with FFMPEG created WTV files. An issue has been opened with FFMPEG to fix this issue, you can vote to fix this here:
Meanwhile uninstall KB2670838.
NOTE: This does not work with Windows 8 since Windows 8 comes with the fix built into it. So for now MCEBuddy created WTV files will not play on Windows 8.