...did some more testing by turning off conversion in the DLNA server (eg Original) then using ACE player to pull the content. Most stuff worked with the excpetion of AVC in TS (and of course no high bit rate stuff). Simple stuff like MPEG2 Video with PCM or MPEG2 Audio in MPG container was fine, so was XVID, DivX with MP3 or ADPCM tracks.
So while MP4 with AVC/AAC makes sense for the handheld conversion, to get streaming working for now, you are better off with MPEG2 Video with PCM, MPEG2 Audio, or MP3 as a streaming profile till the whole TS with AVC/AAC works out.
More testing again - MPEG2 Video with MPEG2 Audio in a TS Container works and allows seeking.
I did not try to "tune" the bitrates but this worked:
ffmpeg -i input2.mpg -vcodec mpeg2video -s 1280x720 -b 1750k -ac 2 -acodec mp2 -f mpegts output.ts
The result was seekable and the time code counted up and the time code remaining counted down BUT the remaining was way to high and if I seeked further I then started getting playback of the following video ....
PS - I was testing on an iPhone.