In response to 1): The PhD advisor who has published in Top 5 probably has seen many star students in his/her life; so, if that particular person thinks you are coachable and have the talent to do what it takes, then you guys are compatible! However, if you are not a star by any means or your research ideas are not well received then move on to the other prof (I think).
2) I am not sure what you mean by this?
3) Well yes.. you have more access to collaborate, bounce of research ideas and take classes at this other close institution so that is always efficient. Just like how silicon valley or wall street is structured.