His PR is meaningless, he was instructed to sit in last place til the bell lap and go. There is no reason to think after watching that race that he wasn't capable of something faster than 3:34. There is also no reason to think that by the time the Olympic finals are held that he won't be faster still.
If he was faster than 3:34 then, possibly faster now, and could be faster still later, the puts him potentially near where Wheating was when busted his 3:30, and certainly stronger than Centro last year but possessing excellent 800 speed.
If he can handle all the rounds of both events, it is quite logical to assume he could be a medal contender - obviously he and Vig feel similarly which (since they know him better than us) should only be more validation to the intelligence of the decision. He likely would have made this move in the future anyway, so why not now? I like the move. Don't know what will come of it next week, but it should be fun to watch.