I've tried the Sheik -> Zelda alternation (Sheik for damage building, Zelda for kills). I actually kind of liked it, though it took a good deal of set-up. The real problem is, in order to do it you really need to knock your opponent fairly far off the stage with Sheik. At that point, why not just jump off and finish the job with Fair->Double Jump->Nair?
Hmm...
1) You should be switching once the opponent goes past 100% damage. At around 120%, Zelda has about six KO moves (well, more...). Once you hit 150%, Zelda can KO with almost any of her moves. I think the only exceptions are DTilt (doesn't KO, but it's good for combos), Neutral A (can KO if he opponent is near the edge of the screen), and NAir (can kill at a higher percentage). In other words, you give up one KO opportunity to gain a huge array of KO moves. If you're good enough, you can even hit the opponent when he/she is still in the air. (UTilt works wonders, as do Zelda's air moves if you can hit with them) A combo I use a lot is DSmash/USmash (Sheik), Transform, UTilt (Zelda), Transform.
Obviously, you shouldn't do this if you can surely get a kill with Sheik. If you're just bumping the opponent off...
2) There's more than one way you can knock the opponent off the stage, and you won't always be able to get a KO from him/her (the stage you're playing on obviously makes a huge difference here). Regardless, you don't have much time to decide whether the opponent is in a good position to KO or not and you don't have much time to judge how far an opponent is going. You should, for the most part, know which way your attack is going to send the opponent. If you know that it's far enough to give you time to transform, go ahead and transform after using it. I find that setting up a transformation is much safer than transforming at the spur of the moment.
So... Sheik -> Zelda makes a lot of sense for me. Sheik can really deal a lot of damage in a short amount of time, but Zelda is so much better at KOing.
Tip: Sheik's USmash and DSmash are perfect setups for transforming. DSmash shoots more horizontally, while USmash shoots the opponent higher. Pick one that suits the situation better.
Zelda -> Sheik, I'm not so sure about. I suppose you could take advantage of Zelda's knockback at low percentages, then switch to Sheik and edgeguard. That's more fancy than useful, but it might work. The problem I have with this is that Sheik doesn't have many KO moves. You have to rely on speed and off-screen hits unless you want to KO at moderately high percentages. (USmash is the exception... It can KO at a little over 100% if I remember correctly) Why would you switch from a KO character into this, though? It can work, but it won't "flow".
I don't see any reason to switch from Zelda to Sheik in the middle of the battle unless your actual battle plan is Sheik -> Zelda OR you're countering your opponent's character.