Well TBH my familiarity with Jellyfin is rather limited, I installed it, it works, I don’t mess with it.

The only problems I’ve had is when some friends had trouble logging in, which was solved with a cache and cookies cleanup. At least the only problems I know of: turns out my friends don’t complain when it doesn’t work.

I know that Jellyfin CAN serve without transcoding (you can disable it on a per-user basis IIRC), but as to why it decides you can’t, I have no idea. Have you tried filing a bug report? Sometimes it’s a bug, sometimes they give you a solution. Sometimes both.