The strange odor will get better. It's probably sulfur compounds produced by lager yeasts that dissipate over time. For now, you could leave it at the warmer temp and I don't think it will negatively affect it. You're getting close to diacetyl rest gravity anyway and 60°F is a good temp for it. So, I'd let it finish primary upstairs.
1.010-12 is a significant amount to ask for a typical lager yeast to come from 1.054 (depending on fermentables). That's upwards of 80% attenuation. Don't be shocked if you don't get that low. Also, you may lose a point or two during lagering.
As for lagering, ideally you'd want to transfer it to a secondary fermenter and lager it at near 0°C. But 40°F isn't terrible. I prefer lagering not in bottles for two reasons: I think bulk lagering is beneficial for the beer because it has greater exposure to yeast (not necessarily quantitatively, but qualitatively) and your carbonation could end up different than you expect. If you lose, say, 2 points of gravity during lagering, that is CO2 produced that you may not have expected. Worst case scenario, you could end up with bottle bombs, albeit unlikely.
But, if you don't have a secondary fermenter available, then you could lager in the bottles. If you do, I'm not sure if you should carbonate first (room temp (if using dextrose/corn sugar) for ~3 weeks), then lager... or lager, then carbonate. Since the yeast are still "working" during lagering, I wonder if feeding them dextrose (easy to "digest") before lagering would make them not do as much as they normally would during lagering. The important thing is to get it out of primary when it's finished fermenting.
As for time, a 1.054 lager should probably lager between 5 and 8 weeks depending on how low your primary FG is (the lower, the shorter lagering time). In general, I would lager this one at least 6 weeks.