> Isn't Trance in a way "compiling" opcodes for a target CPU, but
> using a 68k binary stream as source code instead of text files?

Yes, JIT compilers in general are are a way to make different-ISA executables run on a platform in absence of the executable's source code, and they produce significantly better results than interpreters, but compared to native compilation of the source code, even JIT compilers achieve only a fraction of the execution speed.
This severe performance degradation isn't an issue when JIT-compiling executables compiled for relatively slow CPUs on relatively fast CPUs (as Trance on PPC does with m68k executables), but it becomes unbearable when the performance difference between the CPUs is too small to compensate for it (like with m68k on ColdFire).