This is my first guide, so I'll be editing it as it needs it.

1.) Figure out what music you want

Gather it into a folder. File type shouldn't matter, since we will be transcoding the audio on-the-fly.
Make sure each file had song metadata (title, artist, etc.); the next step will need this, or else your music will who up without a name or author.

2.) Install Playlist Creator

http://www.oddgravity.de/app-opc.php

This will automatically create a playlist file for the music. There's other ways to do this, but I think this is the easiest.
Run through the installation and open.
Click " Add Folder" to select the folder where your music is

http://i.imgur.com/NTSEspG.png

Make sure you create a .PLS file; give it a name, and save it in the same location as the music (for simplicity)

http://i.imgur.com/dTEz5fU.png

3.) Install IceCast

http://icecast.org/download/

This software will allow you to host a local server to stream audio to.
After you run through the installation, open up the "icecast.xml" config file
You'll want to open it from the program directory (default: "C:\Program Files (x86)\Icecast\icecast.xml");

http://i.imgur.com/zIC8YpP.png

You'll have to fill out a few things but it's pretty simple:

Set <hostname> to your public IP address (Google "my IP" if you don't know what it is); this is what people will connect to to hear your stream
Under <authentication>:
a.) Set your <source> password to whatever you want; this is what you'll use to start your stream later
b.) Set your <admin-user> and <admin-password>; this is what you will use to log into the IceCast admin page later

Add a <relay> element below where it says "<!-- Relaying " and before the <fileserve> part. You can paste this in:

<relay>
<server>127.0.0.1</server>
<port>8080</port>
<mount>/stream</mount>
<local-mount>/local</local-mount>
<on-demand>0</on-demand>
<relay-shoutcast-metadata>0</relay-shoutcast-metadata>
</relay>

<mount> is where your stream will be pointed at. You can change that to whatever you want (make sure to keep the forward-slash)

Okay, now you should be able to run IceCast. Run the "Run IceCast (Console)" shortcut from the Start Menu (type into Search), or run the "icecast.bat" file from your IceCast program directory (default: "C:\Program Files (x86)\Icecast").

http://i.imgur.com/dXzK1XP.png

If you don't get any errors, you should be good. Ignore the "location not configued" warning.

http://i.imgur.com/4JqhzpM.png

4.) Install VLC

http://www.videolan.org/vlc/download-windows.html

This is what you will use to stream audio to IceCast.
After installing, you have to enable MP3 streaming.
a.) Go to Tools -> Preferences; click "All" in the bottom-left corner to show all settings.

http://i.imgur.com/liTRoZZ.png

b.) Under "Stream output -> Access output -> Shoutcast", enable "Stream MP3"

http://i.imgur.com/LIT1TnU.png

You can also play around with the other text fields if you want, but you don't need to.

Okay, now to stream. Go to File -> Stream

http://i.imgur.com/7aC5xTl.png

Click the Add button and open the .PLS file you made earlier.

http://i.imgur.com/PCUN5yW.png

Click the Stream button

http://i.imgur.com/FJj33Ca.png

Choose "IceCast" from the drop-down menu, then click Add (don't click Next)

http://i.imgur.com/ZNmXqay.png

Fill out the form with your IP address, mount point ("stream" or whatever you picked earlier), and "source:password", where password is the <source> password you set earlier. Port should stay at 8000, since we didn't change it.

http://i.imgur.com/bwhuLNP.png

Make sure "Active Transcoding" is enabled, and select the "Audio - MP3" profile.

http://i.imgur.com/WCMuuwC.png

OPTIONAL: Enable the Normalize audio filter; will help all the audio tracks sound the same volume

http://i.imgur.com/UJlGkdY.png

DONE! Click stream, and it should be working. Check the IceCast console to make sure no errors are coming up.

KNOWN ISSUE: If you see "Does not look like Speex" in the IceCast console, you forgot to enable Stream MP3 earlier.

You can verify your audio is streaming by opening it in your browser, which will be: http://ip:8000/stream (replace IP with your IP address, and stream with the mount point your chose)

http://i.imgur.com/6Lzy476.png

5.) Add the stream as a radio station

Now you need to configure the game. Pick a radio station you don't want, and change it's settings to match your stream info:

http://i.imgur.com/XjxI1vr.png

Annnnd now you should be able to load the game and switch to your new radio station!