During tasks that take up 100% of all virtual cores, my i5 1.7 Ghz reaches up to ~97°C (core temperature), but only during the first few minutes.
I think that's the two-core Turbo Boost kicking in temporarily since HandBrake shows a higher FPS count in the beginning than later. Then it calms down, FPS count drops and temperatures too, at about 89°C.
From what I have read so far, everybody gets the same kind of figures during such CPU intensive tasks. So I would say the temperatures you're seeing are normal for an MBA. That's nothing to worry about either, these CPUs know how to protect themselves against overheating.