The thing is this, LINQ to SQL is not a true Object Relation Mapper (ORM), it is a data access layer generator. You can make it be an ORM by going deep by hand editing XML files and playing with SqlMetal and whatnot, but where it shines is as a DAL.
The idea behind an ORM is this. You have your SQL database, and your domain objects. To design a database properly, you are going to do things (like normalization) that logically don't translate into a properly designed object model, and vice-versa. This is called "Impedance Mismatch", the role of an ORM is to deal with that mismatch in a clean, effective, and efficient way. The less painful database interaction is almost a secondary thing.
The idea behind a repository is that it encapsulates all persistence logic and dependencies on infrastructure from the rest of your application. When your application needs a Customer object, it shouldn't have to know whether it is coming from SQL Server, MySQL, an XML file, or ASP.NET Membership. Once you have that de-coupling, any changes you make to your persistence story have no effect on the rest of your application.
With that in mind, it gets more clear why he did what he did. LINQ to SQL is used to generate the DAL, but the only thing that should be known about the DAL is the repository, so a translation is made to his domain objects. That way he can refactor his domain model without worrying about his persistence story, and he can refactor his database without worrying about rippling effects through his application. He could also start coding on business logic before deciding on questions like what ORM to use, or even where to store his data.
If he were to use a real ORM (like NHibernate), that mapping code gets handled elsewhere (either in XML or bootstrapping classes). I think LINQ to SQL (and Robs open source DAL, SubSonic) are great projects, but more designed for smaller, two-tier applications where something like the repository pattern is overkill. The storefront is also a good illustration of why the additional complexity of NHibernate can be important. He could have saved himself a lot of code by going with something built to handle that sort of scenario, rather than doing it all manually.
Let me answer your questions one at a time:
Your repositories should return IQueryable<T>, not ObjectQuery. The reason is that the whole purpose of the repository pattern is to abstract away the specifics of your data store. This allows you to do things like substitute a mock repository when you unit test your controllers. If you make the repository return ObjectQuery, then you are not abstracting away the Entity Framework. Another way of saying this is the users of your repository should not know, as much as possible, that it is the Entity Framework which is doing the O/R mapping.
In order to use the greater than and less than symbols in paragraph text in Stack Overflow, you must escape them as you would in HTML, i.e.:
<
You do not need to do this in a code block; in code blocks, you just type the less than/greater than symbol.
Best Answer
Arguments can be made either way, see this recent blog posting: Should my repository expose IQueryable?