Correct. Like all Playlists, the new "sub-Playlist" would be static. You would have to run the process again to update the "sub-Playlist". Probably just emptying the "sub-Playlist", applying the saved search to the Master Playlist again, and then Send To the empty "sub-Playlist" again. Not difficult or time consuming.
Overall I think I like this solution better.
You could still use a Smartlist as you originally ask about, as it supports the dynamic Playlist issue, but then you are left with the original topic of this thread; keeping the order in the Smartlist. Those two requirements, a dynamic Playlist and retaining the original Track order in the new list, are a bit incompatible.
But you could do it. Just use either the [Episode] or a new custom field to store the original sequence, and then use a Smartlist to pull out what you want from the Master Playlist and sort by the field that contains the original sequence. Of course, when you add files to the Master Playlist you will need to update the field containing the original sequence before looking at the Smartlist.
If your Master Playlist is just sorted by Sequence, and you add Tracks to the end, the "Fill Track Number From List Order" would make that easy. If you sort the Master Playlist by the [Episode] or custom field, have "Options > Tree & View > Sorting > Sort empty strings last" ticked, so that the new Tracks are at the bottom of the list, and again, the "Fill Track Number From List Order" would make filling in new sequence numbers easy.
If you will only ever have one Master Playlist that you do this with, I would just use the [Epsiode] field. If you may have more than one Master Playlist, I would create a new custom field to hold the sort sequence for each specific Master Playlist, to retain separation and avoid the possibility of using incorrect sequence numbers.
Of course, then you have to overlay this solution with your other issue of updating Tracks to the best version you have. Not difficult, but requires a little care.