What have you set in "Handheld Options > Conversion > Audio > Mode"? Original, Specified Output Format, etc.?
That is the setting that defines whether conversion will happen or not. The Encoder settings are just what will be done if conversion is required.
If you set the Mode to "Original" or "Specified Output Format" the outcome should be obvious.
If you set it to "Specified output format only when necessary" or "Specified output format only when necessary (including high bitrates)" then I believe MC takes into account the capabilities of the target device (i.e. Can it play FLAC files?), and the setting at "Handheld Options > Files, Path, & More > Supported Types". If you want to always sync mp3 files, you should clear that setting and then enter "mp3" only. That way if you use either of the last two Modes you will always get conversion to mp3 files.
I don't usually convert my FLAC files and just sync them in the original format, but just for you, I tried with Mode set to "Specified Output Format" and the mp3 encoder set to 320 kbps bitrate. MC happily converted a bunch of FLAC files and synced them to my Android phone, replacing the FLAC files already on there. So the functionality is working fine.
https://wiki.jriver.com/index.php/Sync_Handheldhttps://wiki.jriver.com/index.php/Handheld_Sync_OptionsPS: If you want to always get 320 kbps mp3s, you should select "CBR / ABR Encoding", tick the box to "Restrict encoder to constant bitrate", and set the "Target Bitrate" to 320 kbps. Selecting VBR Encoding and Extreme Quality will always give you variable bitrates.