2. Will Sony support HD VC-1 playback?
This is standard on all BR players. So yes it will be on the PS3. The only thing about VC-1 is that its up to the studios to release VC-1 content, not Sony. If some Joe-Blow user got a hold of a blu-ray recorder, and re-encoded something to VC-1, and put it in BR format, it will play.
3. I assume the PS3 will playback DVD mpeg2 material and menus?
At least I think it should. PS3 is going to be designed to be backwards compatiable w/ DVDs (for PS2) so being able to read DVD's for PS2 games should be the same for a movie. If not, there could possibly be updates thru the net.
Given I'm on Team XBMC thinking down this line I feel a bit lousy about thinking of jumping the fence....Though I was reading on a blog that maybe MS may release a HDMI 360???
Don't count on it. Don't worry about HDCP because studios at the moment have decided NOT to release ICT protection and it should last for a long time. They can't alienate the older and early adopters of HDtv's, that would mean alienating a lot of people. Either way, MS's HDDVD was supposed to play it back in full-res regardless, at least thats from what I heard (from MS's official statements)