"There are two races to go with the Transmuter: Humans and Elves. Humans make the most of the bonus base damage from Spirit Sword, while Elves can reach the conversion threshold more often and get more base damage out of it. Orcs don't work as well due to the already high base damage boost. Transmuters aren't good with any other race, as the bonus conversion points from Inner Mastery isn't very exploitable."
I actually disagree with how this section compares the Spirit Sword damage of Elf and Orc Transmuters.
If we compare the benefit the Spirit Sword gives for an Elf versus an Orc, from a strictly melee damage spike point of view, we see that the Elf triggers it quite often with its 70-cp limit, and gets an additional cumulative +1 damage each time the conversion is triggered due to its conversion bonus; however, the Orc triggers it almost as often at its 80-cp limit, and gets a cumulative +2 base damage from its conversion bonus. While the Elf wins out on the frequency of bonus damage, the Orc still wins out on the total damage dealt.
So for purely melee damage purposes, early game best would be Orc, late game best would be Human. I think that Elves still make decent Transmuters, however in my opinion the main benefit for Elves is the versatility of increasing MP (helps cast more spells / spike magic damage later on) and getting bonus damage at the same time, essentially allowing an XP bonus by killing a slightly stronger opponent.
I also wouldn't dismiss the Dwarves as good fits for Transmuters. Even if Spirit Sword takes care of damage spike, killing a stronger monster in melee also requiers the health to survive the monster's strike. In my experience, especially on harder levels, the Dwarf becomes a rather decent race for a Transmuter.
"On a related note, Schadenfreude Potions are very, very useful to Transmuters."
I do not see any special synergy between the Schadenfreude potion and the Transmuter - on top of, the Transmuter being a class that uses both combat and magic (which can be true for most of the classes to some extent). I do see a specific synergy with the Sorcerer, for example, which is geared towards using a combination of melee and spells to kill each monster. The Transmuter can get away with just using spells outside of combat, and going into combat with the Spirit Sword, i.e. the mana refill during combat - while always good - is not necessarily better than with any other class.
7/31/2014: I rewrote the main article due to slight inaccuracies to what I hope is more complete. Feel free to add more.