OK, I figured out that you can't use the very fast Apple Compressor unless you don't have the proxy and do have the optimized (eg ProRes 422) files, but what I didn't realize is that if you import some clips and do a quick edit and then try to run Compressor it will fail with the annoying RequestCVPixelBuffer error because the optimized video is not created. If you right-click on the clip and try to transcode, the Optimized will be greyed out.
What is happening is that it is running the transcode in the background, you can see this in the upper left of FCP where you "Background Tasks" icon that is third from the left and you will see the transcode in progress. So you have to wait for that to complete before using the Compressor. Alternatively, you could use just the "Share" directly from FCP, but that uses the QuickTime compressor which I find is very, very slow, so better to wait for the optimization to happen.
Then when you want to clean it all up because those files are big, you can just choose File > Delete Generated Event Files and you won't have these huge files just sitting there.