Andrew, you realise that the uploading of content-to-Match isn't transcoding or reencoding, the audio is identified via fingerprint? After that, a copy of the AAC file (as available on iTunes), encoded from the label-supplied lossless master, is made available in your iTunes library through your Match account. There's no transcoding of MP3s, that'd be horribly inefficient and error-prone if metadata was wrong/missing etc. That's what I took from where you wrote about it "chewing and spitting out" AACs)... You may want to rephrase that to clarify.
For the handful of files it might not be able to identify from fingerprinting, it will upload the original files and then (I hope!) make those originals available from the cloud instead of transcoding to AAC. Transcoding would make no sense, and Apple (to be fair) are pretty anally retentive about audio quality through iTunes.
I work in the music industry in the independent sector, and I think - as Apple will have already carefully thought about and realised - that there will be a subset of customers who immediately attempt to use it to 'legitimise' their huge catalogue of unlicensed (read: shonky) MP3s. However, once they're locked into that $25-a-year model... Boom. Pure profit from that customer after year 1.
Far more importantly for labels, it's yet to be revealed what the actual base royalty rate will be as paid to labels whenever a customer is given access to a track through Match. Given a track sale through the iTunes store only yields (on average) 50-59p gross to the label, I suspect iTunes Match royalties will be comparabie to Spotify levels of royalty, which are an absolute pittance. (You have to get multiple hundreds of thousands of streams on Spotify to earn more than $100.)
I'm on the fence about Match at the moment. We could see another incremental source of revenue, but I guarantee it won't be a large amount (and lots of our catalogue has been pirated and shared online, particularly on filesharing blogs). We send out DMCA notices if we see lots of catalogue sprout up but we could send out hundreds a day and never get on top of the problem.
We'll have to see if Apple implements and enforces a FUP with regards to how many tracks you can fingerprint and get access to at once - the majors (whose favourable royalty rates haven't been disclosed, but still won't be amazing) will get really pissed off if the majority of Match customers use the service to basically download 128kbps (or lower!) MP3s then get a pretty-much-free upgrade to 256kbps, DRM free, A+ quality AACs. I know I'd be pissed off by that.
Mine's the one with a copy of the iTunes Music Store Style Guide handbook in it