Yes, this is very similar to how we do it for DMO (although I didn't know there was quality property). The main challenge is learning how to use the IMediaTransform interface to efficiently pass byte arrays in and out, and also getting it to flush its buffers on a reposition.
On a different note, I got encoding to AAC from a byte array working last night, and some of your interop definitions proved very helpful so thanks very much.
Mark