Is it safe to click Launch Application upon clicking a bittorrent "magnet link"? :
Could I get a virus by doing so?
How safe is this compared to manually downloading the .torrent file to harddisk and then opening them (double-click)?
Its about as safe as launching any other third party application to run an arbitrary file.
Lets say you go to www.dodgysite.notreal, and you get a popup asking you to run a external application without prompting, hit do nothing, and run like hell. The worst case scenario here is you end up launching an application with a known vulnerability, and your system is compromised through that.
On the other hand, this will happen if you launch any filetype not handled by chrome or explicitly stated as being safe. Its just a sanity check type warning not to run random crap. As such, as long as you're actually clicking and running a magnet link, from a reasonably trustworthy site, you should be safe.
I got brave (or stupid?) and launched the application and checked "remember my choice". Utorrent opened, I loaded the torrent and all was fine.