Hi.
Just Updated VU+Duo2 OpenPLI 4.x to 2014-03-18 version (OWIF 0.2.7) and still transcoding triggered from UI (or at all) isn't working.
VLC Debug message says error: HTTP/1.0 502 Bad Gateway
Check your VLC version. I had similar problems, got it working after upgraded VLC >=2.1.3
I'm on OpenATV 4.0 now, but hope it helps.