Yep, when they break, thats when they need replaced.
What I do, If I notice a belt starts to look bad, woen, cracked, etc. I will go ahead and pick one up. But I usually wait until the old one fails completely. That way I know I am getting the absolute most life out of it.
As far as the other problems, HArd to say. As others have asked, is it the belt or do you have a bent pulley? Perhaps you could try to upload a video of it running??
But even if it has bad/nousy bearings and a bent pulley, if the belt aint slipping, you should still have a good cut, as the blades are turning asfast as they can. The only other thing I know that could cause a bad cut would be if the underside of the deck needs cleaned. If it has layers of packed grass under there, it causes the air-flow under the deck to do some weird things and not lift the grass blades up as it should.