I have been taking part in Start-up chile since January 15th. Overall - it has been a fantastic experience. I came primarily to receive the 40k but quickly realized that the connections with other entrepreneurs is the best perk. Where else can you go in the world to acquire a network of 300+ internet entrepreneurs from all over the world who are currently heads down working on their companies?!
The program does have issues - the reimbursement process is one of them. You should plan to take about a day each month to thoroughly go through your expenses documenting your expenditures for a review committee. After your claims, many times they get rejected at which time you have a day to scramble to re-submit. All in all most of the time they get accepted after a bit of a struggle.
You are also required to give back to Chile in some way (this is called RVA). The process actually isn't too time consuming and is pretty fun to get to know other aspiring entrepreneurs. The easiest way is to just mentor a Chilean student 20 hours (which fulfills your requirements) but you can go so far as to organize a conference or teach a course on entrepreneurship (i am).
About your other questions: 1 - you are allowed to draw a salary of 600 per month, you are also allowed to expense your rent. 2 - Most of the upper class in Chile speak fluent english, you'll be surprised how developed Chile is, Santiago is the most developed city in Latin America that I have visited. The metro is a dream, there's plenty of green space and things run very orderly. 3 - You can hire an intermediate web developer for between 500-1000 a month. Salaries here are much cheaper.
I don't if I get this, but I'm having a hard time picturing just who are you able to get for less than USD 1000 /month, since most developers here would scoff at less than ~USD 1500 (CLP 700000) a month as a starting salary, maybe less if you really like the company.