New rules of transmutation
I believe this means that you need to unequip the item before you can transmute it, not that if you have equipped an item it can never be transmuted. I just tested it, and all I had to do to successful transmute my item was unequip it. When I tried to transmute it whilst it was equipped, nothing happened. As soon as I took the piece of gear off, I had no problems.
I noticed that before this change, when I transmuted an item I was wearing, it tended to was unequipped after doing so. Perhaps the coding of the game didn’t agree with doing things this way. Hope I helped!