I've read many many posts about Logitech Media Server and MC Media server but am not sure how to use them...
Think of them as generally independent.
I have a Synology NAS with my library of music on it. I currently have that library on my local disk and use it that way today.
Make sure you have the lastest Synology firmware / updates. It resolves some problems folks have reported here.
I have a Logitech Revue which streams from the Logitech Media Server.
Does it make sense to have MC17 stream from that LMS also? Or would you discover the remote NAS library with MC17 and play that way?
No reason to have MC stream via DLNA from LMS. Let MC discover the NAS library itself, and use MC for tagging and media management. Think of LMS as simply serving your Revue.
Can MC17 be a client to a Logitech Media Server (a Squeezebox plugin maybe)?
As a DLNA client, it might, but why bother? There's nothing to be gained from this.
Currently MC17 works great with local files. When I discover the library on the NAS, there are performance problems between songs.
I am using lossless files as well as AAC and mp3 files and playing from memory but see interruption going from song to song when using MC17 as the overall media manager with files across a 100Mbit ethernet.
Antivirus software running? If so, configure exceptions for MC programs and MC's network activity. The NAS should have no trouble feeding MC for audio files.