Well, not necessarily if you have a decent "short edge", there is no reason why your short trades wouldnt be as profitable as your long trades. At the same time, even if your short trades are slightly less profitable than your long trades overall, they may still be worth the benefit of being market-neutral and reducing volatility in your portfolio...
That depends. The goal is to reduce the influence of the broad market movement and to focus performance on absolute decision making. So it all comes does to proper stock picking (or currency, index etc). It also results in reduced volatility as in the case of a market downturn one isn't fully exposed.
Just curious--what is the largest one day downturn percentagewise in any US equity market historically?