Transmute is terrible... depending on the board. Lab is a card that combos well with it, because it can link up Transmute and Estate. Here's the thing, though: Ironworks isn't great here, and you just don't need all those Hamlets. You have six in your deck, but only used them 5 times for any more than a cantrip. The IW plays would have been much better as Silver gains, and I don't think you want more than one here. You also bought no Gold, despite a couple chances, and you would have had more chances with more Silvers in your deck. Now, that would have left you more vulnerable to Possession, certainly... but he only plays Possession once.
I'll grant he got lucky with draws, and was therefore able to play Transmute perfectly, and you had a few unlucky draws. But those early Hamlets gave you nothing (Hamlet increases your deck's buying power by jack and squat). And if you had skipped the Potion buy, ignoring Possession, and bought Provinces the turns you got Possession, you would have likely won, forcing him into a Duchy dance; you were in a position to ignore PPR.
In other words, he got lucky and played very well; you got unlucky and played poorly for the board.