Trim lemongrass, cutting off leafy top and hard bottom. Slice in half lengthwise and slice very thin.
In a bowl or sealable plastic bag mix together lemongrass, shallots, garlic, sugar, soy sauce, fish sauce, water, lime juice, salt and pepper. Add sliced beef and toss evenly to coat all pieces. Marinate for at least one hour.
Arrange a platter with carrots, cucumber, lettuce and herbs. Add peanuts to a bowl and set on platter.
Thread the beef onto the soaked skewers keeping the pieces close together. Preheat grill to medium high.
Bring a large saucepan to a boil over high heat. Add rice noodles and remove pan from heat. Let stand until tender about 7-8 minutes depending on the noodle. Drain, rinse in cold water and drain again. Put in a shallow bowl.
Grill beef satay over medium high heat for 3 to 5 minutes on each side, until nicely seared and cooked through. Transfer to serving platter to rest.