Hey chipits.
In short: Yes, No, Yes/No.
1) A lot of people choose to do it this way as the processing times are much quicker. In fact, I haven't heard from anyone going through Sydney taking the inland route as by the time stage 1 inland is completed, you could have already received PR outland.
2) Again, a lot of people choose to do this and have had a lot of success. I haven't heard of any rejections for people from visa-exempt countries (as long as you meet the requirements and have no red flags against your case). There are lots of threads about this on this forum, and there are many who have applied for multiple extensions and received them no problems, so you will be able to get more details closer to the time.
3) This one I am a little unsure about, so maybe others will jump in and clarify for you. As far as I know, he technically he does not live in Canada (yet), he is only visiting so I think you need to include his "home" address in Australia. I think there is a section where you can list another address for mailing etc, so that you get the documents sent to you in Canada though. I don't think they will really care where the medical comes from, as long as it is from a DMP which they list.