RE: Are Pokemon Meant For Battling?
Well, you ask a lot of questions, and some are not easy...
The easy ones first: I adhere to the theory that both pokeballs and PC transfer act like a teleporter, turning the pokemon into data and storing it. That said, I don't think they just stay in stasis, but that they are somewhat able to see what happens and even react (see misty's psyduck). It could possibly be that they take some sort of form inside the pokeball's hammerspace, but don't feel the passage of time.
Now for the ethics... well, if your position is that pokemon are analogous to animals in our world, then yes, battling is unethical, no matter their amazing abilities or if they naturally fight for survival (example, dog/cockfighting is bad, turtle races are hilarious).
If your stance is that pokemon are similar to humans (apparently plasma/N's stance on the subject) then battling and catching them would be very wrong, since it would be a master-slave type of relationship.
If you are of the opinion that pokemon are in betwwen animals and humans, or perhaps that they are an entirely different category of sentient beings, with their own free will and desires, then fighting and catching would be okay, in certain ways. One thing I'll give to ash is that he doesn't force his pokemon to join him; almost all of them went wth him by their own volition, and that's the ideal way to catch a pokemon.
As for fighting, pokemon seem to enjoy fighting by themselves be it in the wild or in a controlled environment, and appear to gain something from it, call it pride, status, whatever, they fight for themselves, as well as the trainer that, well, trains them to do better; it's a social contract, with benefits for both parties's interests.
What I do think is bad, is just collecting and leaving pokemon in the PC; it's okay if you use them once in a while, but if you just catch them for no reason and leave them to rot at the PC, you are taking them away from their lives, and even possibly, preventing them from meeting a trainer who might actually care for them.
DNA's answer is the simplest one you could get, but I think that ethics in pokemon is a extremely interesting thought experiment.