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The precidence of transcoding rules for online is not fully defined in the "Transcoding configuration" document.

It does say "an online file is transcoded if there is an OnlineTranscoding or (local) transcoding matching it" but it does not say if the local or online rules are applied first.

It has always been my understanding that the local rules are applied first followed by the online rules and the first rule that fits will be used. I think this was documented in previous versions.

I have discovered however in testing with 1.0.1 that with the same matches <Matches container="flv" vCodec="h264" /> in both local and online sections that the online rule is used, and the local section rule is only used if I remove the online section rule.

Is this a bug or has something changed?

It has always been the case that Online transcoding is applied first (for onmline content), then local.

OK that clarifies it. Interesting that you chose to place the Online rules after the local rules. If possible it would be nice to put them in "proper" order with the next release.

They only have priority for online content, for local they are never used.