There's definitely an issue there, 106KB/Sec isnt dialup speeds (dialup is like, 5k/sec), and it isnt capped speeds either. Not sure what telstra capped speed is, but if it was 106kb/sec after you hit quota I am absolutely sure everyone would instantly switch to Telstra.
I don't think dropped packets would cause download speeds of 106, if he's usually getting 1000.. he'd be dropping 90% of all packets, and you'd definitely notice issues other than speed if dropping 90% of packets
Do the ping though, see what the response times are, but even if they are massively delayed it still doesn't mean that the download speed should be so slow. Only one who is going to actually be able to do anything is your ISP, I'd give them a call as they are the ones who can actually see what is happening.