1: It would depend on what format they are in on the CD. If they are WAV or MP3 on the CD then just copy them to the hard drive. If they are CDA files then you would need to import them.
I would not use WMP as it will add DRM data to the file making it only playable on that computer in WMP and no other programs.
If you have Microstudio use it to import them in as MP3 files.
2: It really doesn't matter where you put them. If you are going to use them on more than one computer I would put them in a separate folder on the external. The less data I keep on the C drive the better it is.
3: Open the Tools/Instabutton control and add the files in the order you want them to show across the Main screen, adding a Title and the color you want for the button. (This part is in the manual and pretty clear). Highlight each one, click on the Play button up top, adjust the volume to the level you want it. The volume will stay at the setting you set for each individual file. This way you can balance them out so one doesn't blow you away and the next be too soft.
4: None right now.
5: Your best bets would be MP3 or WMA. WAV files will work but the volume control/Play will not meaning you would have to adjust the volume with an outside program to set their level.
If you do happen to get any WAV files (CD or Download) you can convert them with Songverter to MP3 or WMA. Some WAV files will not convert in Songverter because of older or strange formatting.