I've been playing with audio transcoding to my original model PS3 (latest firmware) and have run into the same background hiss/sound quality problems mentioned by others here:
uPnP Server -> Options -> Always Convert Audio/Uncompressed WAV + Receiver set to Playstation 3
The hiss is there with both "Convert audio if necessary" and "Always convert audio" options. Doesn't matter. My MC14 audio library consists of FLAC files exclusively. Background hiss is very obtrusive and totally destroys usability of this new feature for me. Hopefully you guys will find the cause and squash it soon. For now it's back to PS3 Media Server, which streams the very same FLAC files flawlessly.
I'll also note three other things I've noticed regarding audio playback:
1) The "Start" button on the PS3 Dualshock 3 controller does not pause playback as it should. The only option is to stop playback entirely with the Circle button.
2) Total track time is not being displayed properly on the PS3. Elapsed playback time is working fine but the total time field contains only dashes.
3) The progress bar displayed beneath the time information for the track being played doesn't show any information. It remains static during track playback.
If I can provide any more information that would be of use let me know.