This beast has been tamed. Since it ws playing blank, we suspected no data in the video therefore started checking that side. Turns out the .streams have to be started separately. Later Andrew also replied to out mail confirming the same. To test, the streams were started manually via streammanager (oh!! we forgot that interface ever since the streaming engine manager came out!), which worked.
playlist syntax was correct:
<playlist name="list1" playOnStream="streamName" repeat="true" scheduled="2014-06-04 09:00:00">
<video src="mp4:sample.mp4" start="0" length="300"/>
<video src="srcvideo.stream" start="-2" length="600"/>
<video src="stream_on_this_app" start="-2" length="600"/>
</playlist>
Now we have the streams as startup streams, so no problem anymore.
If anyone is having problem, see these two posts which contain some important pointers here and here or let me know if any help is still needed.
Thanks
Inderjeet