Many people use the solution of having separate copies of all music: one for seeding torrents and one for your actual library (where you can then use an external tool like beets to clean up all tags).
I haven't spent so much time transcoding but it "should" work, I've seen other people using MusicCabinet doing it. So I guess it's a matter of finding a working ffmpeg/lame, making sure the user running the Subsonic process has execute rights etc. The subsonic.log file should give quite a lot of info on what's going on.