I guess your biggest concern in all this is oxygenation. Obviously you don't want to pour the beer through the cheesecloth. I think you're on the right track with having the cloth submerged in the beer, but I wonder if it would be better to wrap the length of the auto siphon in the cheesecloth, and then stick that down into the beer to be racked. Or better yet, get one of those cheesecloth grain bags for steeping grains - it would probably be long enough that the open end would be out of the beer, making it impossible to suck up seeds.
The reason I think this might be better is because it will block the seeds from ever getting in the siphon/tubing - could really ruin your day to deal with clogged tubing. Also, if you do it the way you propose with the cheesecloth in the receiving bucket, when you're done racking you'll lift it out and you'll have some leftover liquid dripping down - I know it's a small amount, but those drips will pick up some oxygen and cause some splashing as they fall through the air.