Well I can't answer ALL those questions, but I am (or was) a long time 'buntu (8.04 specifically) user who just recently (less than a week ago) switched over to Fedora 10. I'm also using the 64-bit distro, so theoretically things should have been an even bigger uphill battle for me.
I'll address your questions as best I can:
Have all codecs installed for divx mp3 and other audio play back. Streaming radio stations. No problem for me. There's an install script that made this a cakewalk (codecs, flash, java (all the usual suspects)). I use Rhythmbox for streaming radio without any problem. Beyond that I don't know.
Playing encrypted DVD's. No biggie. Install libdvdcss2 via yum (the Fedora equivalent of Synaptic).
Use compiz effects in Gnome. ( I have an nVidia FX card) Effortless for me... See the install script comment above, it also will install the nVidia driver.
Use Emerald. I detest Emerald, but it comes preinstalled in Fedora 10. Hope that helps.
Use Avant Window Navigator, plus extras. Sorry, I don't use it... [B] Have Adobe Flash Plugin for youtube and other sites.[/B] Install script...
Run Skype, amsn, pidgin. Not sure about amsn, but I think Skype is presinstalled (don't quote me on that), Pidgin IS preinstalled and runs like a champ.
Easy ability to upgrade to the next version for example Fedora 11. Good question! I have no idea. I'm usually a "clean install" sorta guy anyway.
Run VMWare. VMWare specifically? The install script I mention will install Virtual Box (with USB support) if you want... It's what I'm using and it was easy-peasy. I've not tried VMWare in Fedora though I'm thinking about it as I do prefer it over Virtual Box.
Have the choice of KDE if I so wish. As a die-hard Gnome user, I can't say for sure, but I'm under the impression the KDE is a simple Yum download/install.
Feel free to fire away with any other questions; I'll answer as best I can based on my limited experience with F10.