Well I have found the solution to this issue.
Original problem was simple Flex app that plays flv worked locally but not on 
production server.

The actual problem was that the production server is running IIS 6 and all my 
local computer are running IIS5.
MS changed the way IIS works for Windows Server 2003.

Here is the article url: 
http://kb.adobe.com/selfservice/viewContent.do?externalId=tn_19439&sliceId=2
Below is the solution:

Solution:
Windows 2003 Server does not stream FLV videos
Issue

When Flash Player movie files that stream external FLV files (Flash videos) are 
placed on a Microsoft Windows 2003 server and then viewed in a browser, the SWF 
file plays correctly, but the FLV video does not stream. These files work 
correctly if tested on other operating systems. The issue affects all FLV files 
played via Windows 2003 server, including files made with the Flash Video Kit 
for Dreamweaver MX 2004.

This TechNote describes the steps necessary to allow Windows 2003 to stream 
Flash Video files.

Note: These instructions are provided as a courtesy for customers and address 
the issue in Microsoft Internet Information Services (IIS) 6.0 rather than 
Flash.
Reason

With IIS 6.0, Microsoft changed the way streaming media is handled. Previous 
versions of IIS did not require any modification to stream Flash Video. 
Microsoft IIS 6.0, the default web server that ships with Windows 2003, 
requires a MIME type to recognize that FLV files are streamed media.
Solution

Please be aware that these steps do not resolve any issue with Flash, but are a 
configuration step for Microsoft Windows 2003 and Microsoft IIS Server 6.0. Any 
difficulties in executing these instructions or any errors that may arise from 
modifying your system settings should be addressed to Microsoft. For more 
details, please refer to your IIS documentation.

   1. On the Windows 2003 server, open the Internet Information Services 
Manager.
   2. Expand the Local Computer Server.
   3. Right-click the local computer server and select Properties.
   4. Select the MIME Types tab.
   5. Click New and enter the following information:
          * Associated Extension box: .FLV
          * MIME Type box:flv-application/octet-stream
   6. Click OK.
   7. Restart the World Wide Web Publishing service.

Hope this helps someone else in the future.
RL



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