When we read in II Maccabees about the prayers and alms offered by Judas on behalf of the fallen warriors who were caught in idolatry, we are told that "he acted very well and honorably, taking account of the resurrection. For if he were not expecting that those who had fallen would rise again, it would have been superfluous and foolish to pray for the dead. But if he was looking to the splendid reward that is laid up for those who fall asleep in godliness, it was a holy and pious thought. Therefore he made atonement for the dead, that they might be delivered from their sin" (cf. II Mac. 12.43-44).
I really don't believe that we, as Orthodox, define how our prayers, sacrifices, alms, good works, etc. help the departed. We just do it and let God handle it because we are assured that there is some way in which these help: in this, we don't really go beyond what is revealed in Scripture. If you read the texts of the Eucharistic liturgies, not only do we invoke the prayers of Mary and the other saints in our synaxis, but we offer the Eucharistic sacrifice for them; that makes no sense if you believe that they're already "safe" and therefore could not benefit from the extra prayer offered for them, but we do it for those we accept as "saints" as well as for those who are departed, and in much the same way. We love them: they are not separated from us by physical death, because God is a God of the living, "for all live to him" (cf. Lk. 20.38). This is intimately linked to our belief in the resurrection of Christ and the general resurrection, but we tend to leave it at that.
Ideas like "toll houses", "purgatory", etc. are interesting theologoumena that help us wrap our heads around things of which we have no real experience or revelation. Scripture speaks about what happens before death and what happens after the resurrection, but the mechanics of what happens in between are barely hinted at. The fathers try to address this "grey area" in different ways and with different models, but they can only go so far: "dogmatizing" a model, or even strongly emphasizing one particular model over all others as if it's the only real possibility (as some Orthodox do with "toll houses") tends to lead us down inappropriate paths, and so the fathers generally stay close to Scripture on this question, as does our liturgical piety.
You proposed a quote in the first post from Pope Benedict as the current RC understanding of "purgatory"; personally, I don't see anything wrong with it as far as it goes, but I also think it's a stretch to apply it to purgatory when it could also serve as a more general statement on ascesis in the life of the Christian (the references to "fire" could just as well be omitted and it would still make sense, but it looks as if Ratzinger has to add it in both to make his point clearer and to maintain the substance of the Latin teaching). But why is this one passage from an encyclical regarded as the current understanding? After all, you claimed that the official teaching is that which is ratified by a council, and what Florence had to say about it was very short--and yet I don't recall seeing the quote from Florence in this thread. Why should Benedict's expressed view be taken as "the current understanding" rather than his own? I like Benedict, I think in many ways he's the most "Orthodox" pope in centuries, but his view was not ratified in council but merely expressed in a letter of lesser "authority".
I'm an amateur, so perhaps I'm missing something, but this is how it looks to me. Christians have an interest in what happens between death and the general resurrection, how our prayers benefit the departed, etc. The Eastern fathers propose some models and ideas, more as an intellectual exercise than anything else, but in the end we don't worry so much about how all this works, we just do what we ought to do. The Western fathers propose their own ideas and models, but eventually these get amplified and snowball into a dogmatic definition that widens the gap between "East" and "West", or between "Orthodoxy/orthopraxy" and whatever you want to call what the West is doing. In our own day, theologians like Ratzinger and others propose a return to a more Scriptural, more patristic understanding of this question, which brings them closer to Orthodoxy, but without really addressing the ways in which the teaching developed until it was defined dogmatically in its amplified form. But, because it's the Pope's understanding, this is the "current" understanding, even if it's not "ratified in council", even if an existing ratified council would beg to differ.
Personally, I think this is the real problem behind a lot of the "other" problems: the nature of authority in the Church. In another post, I mentioned that a Catholic canonist, responding to the canonical prohibition against prayer with heretics, proposed that the canon cited was no longer in force, and that we should look to "current" law to answer the question. But how can a papal fiat overrule ancient canons accepted by East and West? How can a papal fiat overrule a council? The RC's have 21 "ecumenical councils", but the only ones that influence the lives of RC's today are Vatican II and, if you're of a traditionalist bent, Trent. Other than those two, it's like nothing ever happened. All kinds of stuff that was ordained in the canons of the ecumenical councils we all accept is routinely disregarded by Rome and by RC's. In the end, it seems that it's the Pope who determines the truth at any given time: even if he has access to all sorts of history and documents to form his mind, or even if Popes generally "maintain" a status quo, he's still "calling the shots" and that is "the teaching", even if it seems to be or is at odds with previous administrations. Just look at the ways in which "faithful" RC's responded to the last few Popes: as much continuity as there might be among them, the mind of the people perceives the differences, and with each new Pope comes "the current teaching" or "the current view". It's a more vivid and contemporary illustration of the tendency that I think was always there, to let the Pope as Pope define the truth. We don't operate like that. We may accumulate canons over time, but they aren't abrogated, they remain "in effect" because their foundation is in the faith, while their application is an exercise of the "power of the keys" which all the bishops possess. Our councils and their decrees, the writings of our fathers, the liturgical prayers, all of this is taken into account in formulating and reformulating the truth; our "current teaching" seems, to me, to be more an application of "the teaching" to our time and place, and not "the current understanding" in some "development of doctrine" sense, or as if one bishop is the criterion of truth.
I don't say all that to derail the topic, though I recognize that danger that my "little rant" might do that. It's just that it seems to me this is hardly a topic that needs to be so controversial if we just admitted that there isn't a solid "revelation" or "dogma" about this matter, there are different local traditions that are merely theologoumena to try and make sense of it, but none of that really changes the basic point, which is that we need to offer prayers and sacrifices for the departed out of our love for them because they help them--it is entirely Scriptural and the constant teaching and practice of the Church. But it became so controversial because Popes and their councils and theologians made it so, and even if Popes and their councils and theologians backtrack on all that, we still need to deal with the presuppositions about authority in the Church which helped bring about this divergence.
I don't have access to my library, so I am not able to look up patristic quotes about "the bosom of Abraham", "Sheol", etc., as you asked in response to my previous post. Perhaps some of the other posters will oblige. My understanding of the basic teaching is that we can't really "go to heaven or hell" without the body, so it is at the final judgment, after the general resurrection, when that occurs. Until then, we wait in Sheol. Sheol is bereft of the power it once had because Christ entered its depths and destroyed its power. No longer does it hold anyone permanently, but is more of a "waiting area". Sheol, as a name, is an umbrella term for this waiting area, which has a "good neighbourhood" and a "bad neighbourhood", so to speak. "The bosom of Abraham", or "Paradise", is the place where the heaven-bound wait, while the hell-bound wait in a place known by no other name than Sheol (this is basically the "geography" described by Christ in Luke 16.19-31). There exists a boundary between the two areas, so that, ordinarily, no one can move from one section to the other--their "fate", so to speak, is sealed by the conclusion of their earthly life and how they ended it. But we believe that the prayer of the Church is efficacious to help those in Sheol even to the point of "saving" them if God wills, while those in Abraham's bosom/Paradise benefit from the same prayers as God wills. At the resurrection and the judgment, people will go to heaven or hell in the flesh, and presumably there'll be no need for Sheol, so it will be destroyed.
Now, does that mean heaven, hell, paradise, and sheol are physical locations or metaphysical states or what? How can we speak of the saints as being "in heaven" if the resurrection hasn't occurred yet? Is it more appropriate to simply say that, after death, the departed are in the presence of God, and "respond" to that according to the state of their soul, and whether or not the resurrection has occurred? Since God exists outside of time, has the resurrection already occurred? Tradition seems to have differing answers for each of these questions and others, which I think is a way of keeping us humble and concentrated only on what we definitely know.