In French, mélusine is a noun with two different meanings. The first one refers to a mermaid picture in heraldry representations; it exists in other languages (the Catalan melusina, for instance). The other one refers to a type of felt, common in hat making.
The word is not a dark one since it appears in the big general French dictionaries (Académie, Larousse, Petit Robert). The Académie dictionary and the Larousse dictionary are available online. My Petit Robert (1993 edition) has the word (page 1380, second column, between melting-pot and membranaire) but the online free edition doesn't offer the word (perhaps it is in the subscription part).
I agree with you that if the person asking was an English speaker, it is probably that she doesn't understand the IPA transcription, which seems to be ignored in the English speaking countries even among university students; obviously, that is generally speaking and reasserted by my own experience in online boards, with American students in academic stages in Europe and with American (and some British) English dictionaries.
But I strongly disagree with you on the supposition that: "I think its safe to say that most people in the world would be utterly confused with the pronunciation of mely'zine if they never took a phonetics or linguistics course."
First at all, the knowledge of some rudiments of IPA symbols is expected in some countries for high school students in relation with the sounds of their languages and these symbols appear at least in exercises working on phonetics and orthography. For example, this is the case of France (as you know if you have studied there) and of Catalonia, where in the university entrance examination the students are asked to transcript (or to interpret the transcription) a word or a short syntagm. And the IPA transcriptions are common in dictionaries that include some type of phonetic indication, as Le Petit Robert or the Duden Lexikon der Vornamen, by Kholheim, which are not directed to linguistics or phonetics students but to the big audience.
Second, and most important, the pronunciation [mely'zin] will not utterly confuse most people in the world. The speakers of Romance languages, Basque and a lot of other languages will not be confused at all by the E and the I, on the contrary (because in their languages E represents, at least in some contexts, [e] and I represents [i]); the only confusion will be with the Y, which will be read as [i] for Romance speakers, for example, but this sound is closer to [y] that [ju] or [u] are ([ju] or [u], and variants, are the sounds that an English speaker will produce reading LEW, the transcription that you proposed).
That is, the utterly confused people will be the English speakers because of the Great Vowel Shift but I can assure you that any speaker of a Romance language or Basque (I don't have enough knowledge of other languages to extent my affirmation) is utterly confused by the English pronunciation respelling: AY will be pronounced [aj] (or [ej] by a French), EE will be pronounced [ee] and EW will be pronounced [ew], that is [majlew'zeen].