1 Can someone please clarify if a voltage divider does in fact impose certain performance negatives and if so, why?
There can be a performance issue with resistors. The reason is that all signals have capacitance on them, mostly contributed by the IC pins the signal is connected to, with a small contribution from the PCB traces themselves. The resistance you are adding combined with this capacitance forms an RC filter which smooths out the sharp edges of the digital signals, and for some receiving devices sharp edges are required for proper operation. We've seen 1k resistors added in series with digital lines cause an SPI device to cease working, and reducing the resistor to 100 ohms restores proper operation. Some digital edges are just expected to be "fast".
2 Can someone please clarify when one should use a voltage divider and when one should use a logic level converter?
One should use a voltage divider when cost is an issue and speed of signal rise/fall time doesn't matter (e.g., SPI data lines instead of the SPI clock line).
Perhaps this is why many recommend the logic level converter as 3.3v doesn't technically meet the 5v TTL high requirements and the converter is sure to the right thing for a small price?
Right. Some 3.3V devices output voltages very close to 3.3V and work just fine when connected to an Arduino input. Other "3.3V devices" output voltages that are "high enough" for other 3.3V devices (e.g., 2.5V) but no longer work with a 5V Arduino.
If you're dropping money at Sparkfun anyways I don't think it would hurt to spend $1.95 to buy a little insurance. But get the resistors as well and try them -- it sounds like there's a learning opportunity here :)
The Ruggeduino: compatible with Arduino UNO, 24V operation, all I/O's fused and protected