If you are using the Principal Components node from the Modify tab, then in order to include class inputs, you would need to dummy encode them using the Transform Variables node first as you said. In the HP Principal Components node however, there is a property for it to do the class level encoding for you. In both nodes, you can set the Eigenvalue Source to Correlation to standardize the inputs. And also in both, any observations with missing values for any of the inputs are excluded, so you would need to first run the Impute node to impute missing values.
... View more