Only short answers I'm afraid, but I'm sure other people will be along to help.
1) As far as I know, yes.
2) You can use any image file in MB. I think the format gets converted, but don't quote me on that.
3) A lot of people who care about high quality images of artwork (including me) use 1000*1000.
4) Select all the files you want to have the same artwork, go to the artwork tab in the tag editor, and make sure that the checkbox for Embed Artwork is ticked. Then just paste it in.
I will say that if you're only planning on using MB for this one task and are going to keep on using WMP for your actual music library, then there are probably more suitable tools than MB.
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