Turns out the the answer was elusive but pretty simple. Had nothing to do with the settings at all. When the PS3 is connected via ethernet, the PS3 internet connection also HAS TO BE SET TO ETHERNET.
If it's set to wireless then the ethernet does not function. How strange is that? Once I set everything to a wired connection - boom - things worked perfectly.
So the stuttering I had mentioned earlier was because the PS3 was getting the information wirelessly and couldn't keep up at that point.
Hope this helped anyone having the same issue.