PLC For MV Networks

In a nutshell, you add a high-frequency, low amplitude signal to the low-frequency, high amplitude AC signal. Powered devices don't care about the added noise, and filtering can extract the high frequency signal without the low frequency component.

Probably due to the dangerous nature of mains power, I haven't seen any blogs or tech notes on how to implement it. However, an Amazon search for "Power Line Communication" yields 325 books, of which most appear pertinent to your question, and by much more qualified persons than myself.

It is possible. However, if you're using an Arduino, you likely don't have the expertise to create a well-isolated and well-insulated shield. No offense intended, I would be hesitant to try it myself, and I've had some training on the topic at a university. Also, an Arduino is meant to be handled, and, as Joby pointed out, it will definitely need a well-designed enclosure.

All things considered, you'll have a much more flexible, easier to create, cheaper, and more robust system if you simply use an Ethernet shield and buy a powerline ethernet adapter like the one you linked to. Do some searching, they're available for less than $30.

Slightly off-topic, but I would consider Power over Ethernet to be much more within the reach of an Arduino shield. National has a decent appnote/FAQ on their LM507X series of powered device controllers. This is something I'd like to try once I get some free time....

The best way is to use an off the shelf part. So you don't have to worry about burning your house down. That is why I mention X10. There is already a library to interface to X10

As how to do it discretely, look at the Mamba Shield it is a hacker alternative to the X10. You can see from their schematic, there is a lot to it. Note there are no relays. And they have taken HiPot in to consideration of there components and design. Note the Mamba does not have UL or equivalent. So while it is likely safe, it has not been proven to be. And it is just as expensive as the wifi shield.

The X10 is not cheap either. But it is proven. Not sure whats UL equivalent is.

More research show the X10 Pro products (different than X10) are actually UL tested. Where the PSC04 is equivalent to PL513 and PSC05 is equivalent to the TW523. both of which appear cheaper then X10's original product.

Where as it is hard to get any solution much cheaper. If you do it your self discretely low volume pricing of part costs is expensive. And off the shelf items have overhead.

The cheapest way is to use a $4@ RF Link Transmitter and RF Link Receiver pair.