No- PS3MS will not trans code the audio-- I have had the same problem. To solve I have used tsmuxer to choose the correct audio track from the ripped Bluray.
There are a number of great GUI's that will merge the video and audio into MKV's to stream to the PS3. This is where PS3 MS is better than Tversity. I used to use Tversity, but now only use PS3MS. I stream full 1080p movies from my desktop on a wired network-
Shaw Direct DVR830 / DVR 605/ 605, Sony Xbr65" 950E", Sony XBR4 850d, Oppo 980H, Yamaha 7.1 Surround, PS4! WDLive