Well, there are several ways to do it "right". You have to look at cost vs effectiveness when you're building something like that.
I've always had a problem with the triple-transform, since Hero has no rules for someone's "spirit" (not since 4th ed anyway, and the spirit rules weren't talking about the same thing). That seems like a very genre-specific element that isn't represented in the Matrix movies. In other words, what is the gameplay difference between something that only only transforms body and mind, versus body, mind, and spirit? I can't think of one.
There's also the issue that Transform is an attack. It's used as an attack, and it's costed as an attack. The cost of a Major Transform is based on the cost for RKA, the idea being that if you can kill somebody, you might as well be able to change them into stone or whatever else. This was explicitly stated in 4th, I don't know if the same language is in later editions. And most of the time, Smith isn't in a situation where he needs to use an attack. Most of his transformations occur offscreen, or affect individuals who show up only to be transformed.
I would say the simplest method is to just use Duplication. That's really what he's doing. It's just that the special effect of his Duplication is that he's changing nameless NPCs (who for gameplay purposes didn't even exist until he needed to change them into himself) into his duplicates. When he transforms nameless homeless dude pushing a cart into another Agent Smith, that's just Duplication. That homeless dude didn't even exist until Smith's player said "I run over and turn some homeless guy into another me". There's no need to roll damage or anything because it's an automatic success. The GM doesn't have character sheets for all 9 million people in the city, he didn't have a plan for that particular homeless dude. That guy wasn't holding his action or doing anything important related to the scene.
It's like having a brick having a 12D6 Energy Blast, defined as "tear up chunk of sidewalk and throw". You don't have to waste your actions ripping up a piece of concrete from the ground, you just use the EB because that's the fastest and easiest way. You can always find something to pick up and throw, because you bought it that way. Smith bought his Duplication, defined as "turn random passerby into another me".
Now, he probably also has some form of Transform or HKA to use against people that have actual character sheets. When the goal is not just to make another you, but also to "get rid of this guy attacking me", then you need something more. I'd suggest that there's no real need for a 3-stage Transform. You're just killing the guy, an HKA would be fine. You're attacking people who aren't going to have either Power Defense or Resistant PD (other than Combat Luck). We don't see how the effect would work on somebody like Ben Grimm, so we don't know exactly what defense he was targeting. HKA should be fine for that world. Then once you kill the guy, you use your Duplication again. No need to mess with somebody "healing back" from your Transform, or defining a process to reverse it (we don't see any in the movie except for Neo, if I remember correctly -- the movie was terrible so I only saw it once). So HKA works, just kill the guy and then Duplicate again.