1) Yeah, you can use any LZ4 library as long as it is compatible with LZ4F (many of the .NET libs uses its own framing that is not compatible with LZ4F). At that time lz4net was the first one I found that actually worked properly, so I went with it.

2) Well, don't repack the dir itself, I should probably add a warning about that :P
Just create a subfolder or another folder somewhere else and extract the package into that. Otherwise, you'll be recursively repacking the same file.
Most compressors simply create a temp package file and use that as destination path for the compression, then rename the temp to the final path after it was finished to avoid overwriting the original file if something goes wrong.