I read somewhere that the PS3 titles were only in Stereo. It would be sweet if I read wrong.
AFAIK, it depends on the title. If it was mastered in stereo only, then that is what you will get.
-I watch on a 106" screen, are the video bitrates capable of providing a good picture at that screen size?
Certain movies are available in HD, which I would presume is at least 1080i. I think I am going to try one to find out. There are a large number of titles that are in SD only, presumably 480i/480p, for faster download because the file size is MUCH smaller.
-What are the audio bitrates and codecs compared to BD?
I couldn't tell you yet, but I would presume it is also by title as to what you get.
-Are there chapter select menus? Extra features like deleted scenes and commentaries?
No extra features or menus on the titles I tried, but you can skip via chapters.
-I haven't bought anything through the PSN since Stardust HD came out. Have they cleaned up the purchase process so that it's less painful?
Less painful than what? It hasn't changed - add via a card registered to the account, or you should soon be able to buy playstation funds cards to redeem at the store.
I guess it comes down to "How much quality or perceived quality am I giving up for this convienience?"
I don't think the quality of the video or audio will be an issue, but if you want extra features you may miss out. For many movies, I can do without the extra features, however I do watch them for movies I like.