Transcoding isn't directly supported, but you could use VLC as a proxy. Clumsy, and not ideal on a Pi - realtime transcoding of 1080p might be a challenge :)
Speed test typically tests to a local server, so you're looking at each end of the conversation and not end-to-end. If you run a tracert from one client to the other you'd get a better idea of where the traffic is going on its long journey past the Alps.
Buffer size in XBMC... yes, you can tune the buffer, although PVR is different from 'normal' videos. I found this thread which would be worth investigating:
http://forum.xbmc.org/showthread.php?tid=159142
Regarding 'pausing a little' - not on 3.4, I suspect. If you move to master (3.9.x), and swap pvr.hts for pvr.tvh, then timeshift will work much better (although not yet perfectly) and that might help. That said, swapping either the tvheadend process or the PVR addon isn't a trivial exercise on OpenElec, although it's doable. There are various threads on the XBMC/Kodi forum that may help if you wanted to give that a try.
The other thought ... if, instead of streaming, you record it locally, and have a mapping from your local client to the remote one, then you can play the file as if it were any other recording - including pause. Basically, bypass Live TV completely on the DE end. Ugly, and not really for long-term use, but another test... I know you'll get problems when you reach what XBMC expects to be the end of the file, for example (i.e. the size it was when you first started playing it, even if it's getting bigger all the time).