You can do on the fly converting when syncing media to devices. Would that not be much simpler than what you're suggesting? You can also stack files, to hide either original or the converted files. You can also make views that hide one type of files, so it's better suited for sync operations. It would however still require that you do the conversion each time you get new music. Perhaps it's possible to automate it somehow?
I just don't understand people that want to have separate libraries So much trouble. And for what? Minimal gain in most cases, with a doubling of maintanance work most of the time. Perhaps not for a full sync operation, but still. I have a hard time believing that most people that want multiple libraries really benefits from that, rather than finding another solution on a single library.
OP, have you tried Library sync? I think it is supposed to do more or less what you're describing, but it hasn't really worked right for me in a similar application. I'd also be interested in a solution for this (full library sync with or without conversions), and there aren't many good alternatives (that I'm aware of) for my use case.
I have a laptop that I use as a music player at work and I want it to have all the same music as my home computer but in compressed (MP3) format to save space. My work has a "no media streaming" policy so I can't just use media server to directly see my home computer. So my only option is to transfer and convert the files to the laptop at home. Easy the first time, but updates are harder than they should be. The "library sync" function doesn't correctly recognize files that are already on the laptop, so everytime I run it, it tries to move and convert all 50,000 music files, which (even over an ethernet connection) takes more than a day.
So I configure an external harddrive as a handheld in JRiver and use the sync function to move and convert the files (because the handheld sync correctly senses when files are already on the "device"), but then I have to manually move the new files from the external to the laptop because I haven't discovered a "reverse sync" function. Come to think of it, I guess I might be able to save a step by sharing the laptops music drive and just configuring that as a "handheld", but it's weird that handheld sync works so well at detecting files "on the device" and library sync can't seem to identify any pre-existing files.