The good thing is that you don't need to have the storage directly attached to whatever is running plex, as long as the storage is available to the server.

As for the transcoding part, there's a few things to think about. Will you always be the only person streaming from it? Will it always be at home in your network? Do you need soft subtitles? If you are watching locally only with no subtitles, it mostly negates the need for transcoding as long as the media files you have are compatible with the devices you watch on. You can do what's called direct streaming where Plex does no transcoding at all because the client can decode the media as is. For a low power server like an RPi this would be the ideal way to use Plex. If you plan on using plex remotely or letting other people use your plex library remotely or use subtitles that need to be burn onto the video, then you will need transcoding. In that case, some of the newer RPis can usually barely transcode a single 1080p fast enough for watching video, but that varies by exactly which model you get. Do realize that if you do the pre-transcoding it will essentially max your RPi into that one task, so trying to have more than the Plex service on it likely would not work out well. It can also take a considerably long time to finish the transcoding, as an example a 20minute episode might take 40 minutes to transcode, so you won't have the target quality until later, so you have to plan ahead if you want to watch something.