Mark, you ask "What, if any, is the downside?".

Referring to rates, there is none.  While rates will vary just as Money Market rates will vary, during the past 2 years they have always been well above brokerage Money Market rates  (I can only speak from experience with regard to HSBC).  Part of the reason for the rate advantage is, no doubt, the absence of Expense Ratios associated with brokerage Money Market accounts. 

There are many on-line banks.  They all have different rules and procedures for accessing and depositing money.  Some charge fees for various services.  Some don't.  When I was researching on-line banks a couple of years ago, HSBC offered the best rates, most services, least fees, and best security.  I haven't been disappointed. 

FWIW, two other on-line banks (rates in parenthesis) to compare with HSBC are:  EmigrantDirect.com (2.75%) and ingdirect.com (3.0%).

"Are these widely used by Bogleheads?"

I don't know.  However, since a tenant of the Bogleheads is to minimize costs, I would not be surprised to find out that on-line savings accounts are used by many.  I doubt John Bogle recommends them because on-line banks compete with Vanguard for your money.

Regards,
Russ