I believe they stack. And yes, I would agree that they suck if they only work on gear lvl 79 or less. If they worked on lvl 80 gear, I can see people wanting them. It is just vanity item. You like the look of one piece of armor, but it is a real low level or bad stats for your build, so you use that transforming portion to make the armor with the lvl/stats you want look like one with the looks you want.
Case in point, I like the shoulder pieces I had at lvl 1 on my guardian (it has a nice aquamarine blue ankh/symbol on it). So I am keeping those around and at some point I will use one of those transforming potions to get that look back.
He's talking about the potions that transform your character temporarily into a monster.
The transmute stones, which is what you're thinking of, come in two varieties: Basic and Fine. The Basic ones work up to level 79 gear. The Fine ones work on all gear, and they do stack.
