1. Divinity II and DKS aren't compatible IIRC. If you wanted to import your char, I think you should have bought Flames of Vengeance by itself. I wish Larian had made this more clear, but on the other hand, this is forum is packed full of posts on this subject of compatibility.
This also answers numbers 2 and 3.
4. Agreed.
5. I don't think so. I spent a lot of time wandering the city talking to people before I got bored. Never did get back to finishing up the expansion.