The MPEG feed is already encoded at DISH. The sat receiver decodes the feed, but instead of sending it through HDMI, composite, coax, etc. the Sling Adapter grabs the decoded feed and re encodes the feed dynamically to be suitable for most people's generally anemic upload/download speeds...
Perhaps we are having a disagreement over terminology. It almost sounds as though you are talking about demultiplexing the transponder into different channels.
I'm calling the mpeg compression/decompression algorithm "encoding" and "decoding". Certainly the video is somehow turned into mpeg at Dish. If they only have an analog feed from the channel provider, then they would be sampling the analog, digitizing it, compressing it with an mpeg encoder, and finally encrypting it. If it comes to them digitally, then they probably use the same techniques as those used by the Sling Adapter, which is to decrypt, transcode, and re-encrypt.
The receiver itself can definitely decrypt and decode the mpeg data stream for display on TVs. But it has no hardware to do the much harder job of encryption (or sampling and digitization of an analog signal). The heavy lifting is all done by the Sling Adapter which transcodes in the digital domain.
So that is where we part company. If I understood what you are saying above, you think that the receiver is using it's TV2 mpeg
decoder in order to send the (uncompressed?) data stream to the Sling Adapter. Whereas I claim the TV2 mpeg decoder is not being used during Sling Adapter operation at all, and the already compresssed and encrypted data stream is what is going out the USB to the Sling Adapter.
This is not to say that you aren't right in claiming the 722 has a hardware limitation preventing the Sling Adapter from operating along with TV2, or (getting back on topic) switching inputs for the Sling Adapter from TV2 to TV1. I
thought I remember Scott saying (before release) that the video on the Sling Adapter was mirrored on the TV2 outputs. (Or maybe it was the 922 he was talking about.) Anyhow, when I cranked up a standalone SlingPlayer and got it connected to my 722 w/Sling Adapter, there were 3 potential inputs listed. I'll bet they corresponded to TV1, TV2, and recorded programs. But I have no way of proving that since I never got it to switch inputs at all.