I found out why PMS v1.10.1 wasn't working after I closed it. Since upgrading to v1.10.1 of PMS when you quit the application it doesn't always end the java session as well. So the next time you start it it creates a new java session. The PS3 and Traces tab seems to still see the first java session and that's the session the PS3 is connected to. You won't be able to stream any media until you force close any java sessions that are still running. So I quit PMS and then force closed all active java sessions, then ran PMS again and it's been working fine. But as soon as I quit it, the java session still remains open.
Also, after playing with options it appears that deinterlace feature is what causes my transcodes to stop around 45% of the way through.