[chumbucket]

Well, I guess I might as well weigh in on this one too. Here's what I would do; If the deflection of the transom doesn't appear to be excessive, I would run it that way for this season. You've already got reinforcement with the stainless steel sheets on either side. If you feel however, that the safety of the boat is compromised at all, by all means, go ahead and replace or repair.
Now, if it were mine, I'd be inclined to cut the outer skin of fiberglass of the complete back of the outside of the transom with a saw. Then it's much easier to remove all the rotted wood but save the inner liner of the transom. Use the skin that was cut out as a template to cut new marine plywood, attach, then epoxy and reglass the outer skin using West System or other comparable epoxy resin/glass system. In the end, I don't think it'll take much longer and I would personnally feel more confident in the final outcome.
That's just my .02 worth though.