iTunes Match Info
I'm in the developer beta for it and can answer some of the questions you had.
Anything you download from them is 256kbps DRM free, and you get to keep it even if you do not renew iTunes Match. Think of iTunes Match as a download service you're paying for. Anything you download is yours, but without paying you cannot continue to download stuff.
The way it works is: It adds everything you've purchased and don't already have downloaded into your iTunes library with a little 'download' icon on it. For existing songs, if you delete one, the download icon will appear and you can re-download it. That's how you can upgrade it to higher quality. Here are two examples:
Example 1:
You have a 128kbps DRM protected song you bought several years ago.
You delete it, and a download icon appears next to it.
You click that, and it downloads a new copy of the song at 256kbps with no DRM.
It's now yours, and you have effectively upgraded your song to higher quality with no DRM.
Example 2:
You have a 128kbps song you did NOT buy from iTunes.
You delete it, and a download icon appears next to it.
You click that, and it downloads a new copy of the song at 256kbps with no DRM.
It is also yours.
In both examples you replaced a lower quality protected version of your song with a higher quality DRM free version, and they are yours to keep regardless of whether you continue to pay for iTunes Match or not.
Hope this helps!