Hi mithrandir, good to see you 'round these parts again!
I just did a quick test of Musepack's transcoding ability. Picked a random song, 311's "No Control", encoded once from FLAC, then again from the encoded copy. Both encodes were -q5, mppenc v1.15r.
I used WinABX to compare the first-generation MPC to the second-generation MPC. First, I tried the opening seconds, and scored a wonderful 4/8. Then I tried a part in the middle, and scored 18/24, for a grand total of 22/32 (pval 2.5%). The twice-coded version had a noisier tambourine that didn't sound quite as "real". Of course, if I didn't have a copy of the original to closely compare with, there's no way I would have known the second-generation encode had anything wrong with it. I'd give it a 4.5 on the 1-to-5 scale of ABC/HR (perceptible, but not at all annoying).
My conclusion: transcoding MPC->MPC is unsafe. Perhaps later I'll try starting from higher -q values, or even testing the first-generation MPC against the original. I did an MPC transcoding a couple years ago, using an older encoder version (v0.90o, perhaps), and I remember the artifacts were much worse, even going from --insane to --xtreme. So MPC has certainly progressed in transcodability, and presumably in overall quality as well.
(Below are the details of my test setup)
For the first encode, I used Foobar's converter with replaygain disabled, but the DSP enabled (with crossfeed, convolver, and a few negative dB's of volume). I turned the DSP off for the second encode, and used Foobar's converter on the first-generation MPC. Foobar's replaygain says that there is a 0.14dB difference between the two tracks, the second encode being louder. Sound Forge also reports 0.1dB difference between the two, both in peak amplitude and RMS volume. I didn't apply replaygain to the second-encode because, really, there shouldn't be any difference in volume except for any additional noise introduced by the second transcode.
CODE
WinABX v0.23 test report
05/19/2004 21:12:39
A file: G:\Filetemp\diskwriter\311 - [1997] - Transistor\311 - [11] - No Control (1st encode).wav
B file: G:\Filetemp\diskwriter\311 - [1997] - Transistor\311 - [11] - No Control (2nd encode).wav
21:15:35 1/1 p=50.0%
21:16:22 1/2 p=75.0%
21:16:48 2/3 p=50.0%
21:17:04 3/4 p=31.2%
21:17:46 3/5 p=50.0%
21:17:56 4/6 p=34.4%
21:18:09 4/7 p=50.0%
21:18:18 4/8 p=63.7%
21:20:13 5/9 p=50.0%
21:20:27 6/10 p=37.7%
21:20:35 6/11 p=50.0%
21:20:54 7/12 p=38.7%
21:21:34 8/13 p=29.1%
21:21:43 9/14 p=21.2%
21:22:01 9/15 p=30.4%
21:22:13 10/16 p=22.7%
21:22:19 11/17 p=16.6%
21:22:46 12/18 p=11.9%
21:22:53 13/19 p= 8.4%
21:22:59 14/20 p= 5.8%
21:23:02 15/21 p= 3.9%
21:23:14 15/22 p= 6.7%
21:23:35 16/23 p= 4.7%
21:23:47 17/24 p= 3.2%
21:24:27 18/25 p= 2.2%
21:24:34 19/26 p= 1.4%
21:24:47 19/27 p= 2.6%
21:25:01 19/28 p= 4.4%
21:25:10 19/29 p= 6.8%
21:25:25 20/30 p= 4.9%
21:26:09 21/31 p= 3.5%
21:26:49 22/32 p= 2.5%
21:44:06 test finished