Why is transcoding realtime into a format supported in DLNA Guideline awkward? That's exactly what's done right now.
I think that was pretty much covered in the last sentence.
Having the support for the original container is much better from a quality/usability standpoint.
The PS3 is intended to be connected to an HD-capable display. A realtime transcoded stream is going to look damn ugly.
You also:
Lose the ability to seek
Advanced features such as chapter markers and integrated subtitles inside the original media file are lost.
Given that the objective of the transcoding is just to get the file to play, it's even possible you will lose resolution and/or surround sound in the resulting stream.
The ability for a Media Server to transcode to a common format is useful, but it's not by a long shot an adequate replacement for comprehensive format support in the Media Renderer.
Of course in some applications these issues are not as important, such as portable media playback. Here the ability to transcode to a format with lower decoding requirements is actually a desirable function given the inherent limitations of the playback environment. If you transcode to a format which requires less processor power to decode you may end up with longer battery life, for example.