Guild Wars 2

Will we be able to transmute items of different rarity? like transmute a fine with a exotic or a green item with a blue item?

Transmutation will not use items as skins anymore. When you obtain an item, the skin is automatically added to your wardrobe. The skin is completely independant of any gear you use it on, and no item has to be wasted when transmuting.

For example, right now it is:
Generic Greatsword + Cool Greatsword = Cool Greatsword
But now it will be:
Generic Greatsword = Cool Greatsword

This works the same as the current achievement reward skins.