Factory reset to restore performance? What are the disadvantages?
You'll be in the clear for the most part.  I factory reset my Moto DROID v1 a few months back, and while it is a little scary to do a total wipe like that, you really have very little to lose.  Like you say, you'll be able to redownload any app that you have previously purchased, and your contacts / e-mail should sync back up just fine.  It is a little frightening to see the commissioning screen on first boot, but you'll get past that quickly.  Like you, I had tried clearing out as much as I could and getting "lean", but I still saw a big performance boost after resetting.

One thing you will want to be certain to do is save any text or MMS messages that you have received to your SD card.  These get stored in system memory by default and will be erased if you don't save them to the SD card first.  You can save an image attached to a text by long pressing the image.  You'll get a pop-up with the option to save it to your SD card.