I'm very enthusiastic about Twonky. Easy setup and it works!

But now i have a litte problem with transcoding. I configured it on a Ubuntu Server 10.04 including mkv.
I thought transcoding means-> when i choose a mkv-file on my PS3, my server will convert only this file on the fly.
But when i activate transcoding on the twonky-webinterface (i have choosen "mpeg2" - is this ok for HD-Content?) i see processes running on my server, converting all mkv-files. So, transcoding really means, that all my files will be converted? Isn't this a problem? that will take the double space on disk for each mkv??
I hope someone can explain me, how it really works.

with best regards...