What I am curious about is if there would be anything stopping someone from paying the $25 once to convert all of their previously pirated tracks to "legit" 256 kbps AAC tracks...this seems strange to me.
Those previously pirated tracks aren't suddenly "legit" because Apple transcoded them to another format. The $25 is essentially a transcoding fee-- it is not a license fee for previously unlicensed tracks.
Considering that the "sync" just takes "minutes" I think the only thing you're getting is a bunch of freed up disk space thanks to a mass delete of your library and a 1-year licence to stream those songs from iTunes.