Use a 1-1-1 mix of coarse(not milled) peat, perlite(or something very similar, neutral or lower ph) and finely shredded bark. This has all the nice properties you want and should prevent root rot. Especially so if the pot has enough draining holes. Putting gravel in the bottom will probably help too. That's what I do though I have never been able to establish as a fact that it works.
Roots should be loosened. If a pot bound rhododendron or azalea root ball isn't opened up, they won't grow outward and instead choke themselves. It's important to cut away rotting roots, soak away soil and open up the roots a lot.