iOS App 4.13
Plex Media Server 126.96.36.19978 and 188.8.131.5290
After running various tests and scenarios I was able to trace the issue down to this. On local network, play back of channel videos always use direct play/direct stream ignoring the Home Streaming Video Quality settings. I have tried on a couple channels (IPTV and iTunes Movie Trailers) and both exhibit this behavior. Was introduced in 4.12.
Movies/TV Shows in the library properly transcode as per Home Streaming Video Quality settings, appears to just be channel videos.