I finally got it to work properly!
After getting the daemon startup script to log the output of transmission console, I saw that it was trying to pull the configuration from "//.config"
My guess is that for some reason it couldn't see the HOME env var. It seems unlikely that HOME is not yet set when the script starts.
I was doubtful of uncommenting TRANSMISSION_HOME as for some reason I could not see it being exported after starting the daemon through the script.
So I ended up setting TRANSMISSION_ARGS="-g /recalbox/share/system/.config/transmission-daemon" and it worked like a charm.
