Comment 4 for bug 571097

transmission-cli and transmission-deamon 1.93 from -Proposed appear to have fixed this problem.

# egrep "(password|username)" /etc/transmission-daemon/settings.json
     "proxy-auth-password": "",
     "proxy-auth-username": "",
     "rpc-password": "{6ac7........................................GxD/",
     "rpc-username": "transmission",

No permissions problems observed in /var/log/syslog

/var/lib/transmission-daemon/info/settings.json is a true symlink to /etc/transmission-daemon/settings.json