Should I upgrade to V3 ?

Not if you want it to be really stable.

What features do i gain ?

Playback of Ogg and Flac files.
Cross fade.
Pitch bend.

Any downsides / problems i should be aware of ?

Database rebuilds do not work properly, so adding music to the player is an exercise in frustration.

Can i use emplode v2.00. I read somewhere it wasn't working ?

The emplode 2.10 that's meant to go with alpha3 has some problems and doesn't synch properly. So I think you're supposed to use 2.00.