If this doesn't produce any errors from AMD's driver then it looks like you've uncovered another bug in their implementation. I'm so glad I don't have an AMD GPU anymore. Trying to develop modern OpenGL on one was a nightmare.
In general, the trend on modern hardware seems to be that math gets cheaper and cheaper while bandwidth gets (relatively) more expensive. So compression at the cost of a few ops is often worthwhile. It does depend on the specific hardware and use case though (and I'm no expert).
I think half floats would struggle a bit to cover 1000m at 0.1m intervals. A half float is only 16 bits so only has 65536 possible values, plus most of them will be focused close to zero, so perhaps not appropriate for position data. Half floats are probably fine for direction and colour though.
They are talking about sRGB encoding. Ordinary images (as in photographs with 8 bits per component) are typically encoded in the sRGB color space. You cannot perform math with these values until you have first converted them to linear RGB color space. If you create a texture using a sRGB format (e.g. GL_SRGB8_ALPHA8 or DXGI_FORMAT_R8G8B8A8_UNORM_SRGB) then this conversion happens automatically when you sample the texture.
Of course, it's unfeasible to render such a scene using metres as my base unit, as I have to specify the spacecraft's position in hundreds of thousands of metres relative to the centre of Earth, and using such massive numbers to position objects in Direct3D seems to cause problems.
Hundreds of thousands of meters doesn't sound like a whole lot, not if you are using 32-bit floats. If you were simulating the entire galaxy, I could see this being an issue, but you are only simulating Earth out to LEO.
Edit: Then again, now that I think about it you would only have accuracy to like 1/10th of a meter far away from the origin. If the origin is centered around the spacecraft then maybe it wouldn't be an issue. You don't need better than 1/10th of a meter accuracy for something >100,000 km away.
Also, it doesn't really matter if you are using meters, kilometers or millimeters as your base unit. This has no effect on the precision of the calculation when you are working with floating point numbers, as you are only changing the exponent.