1A) that is how you flash a firmware. very easy.
1B&C) I have never used the market mods and don't know what various files do.
2) some people on slatedroid recommend flashing the 7/24 version of the Pandigital firmware (to wipe it clean, more or less) before flashing a custom firmware. (I did not)
3) Dunno if it would be harmful. Can't imagine it would add anything. There's an "ask the experts" thread over on slatedroid.
4) any of the firmwares over there that say "OP" or "open platform" do not contain the Pandigital home screen or reader (and maybe other pandigital apps). On the nchntrman thread I linked above, many of the builds are based on the OEM (original pandigital) firmware and contain a homepage switcher that allows you switch between the pandigital home screen and apps and the android page. (he also has "OP" builds). These do not contain market access.
looks like this one:
http://www.slatedroid.com/index.php?topic=14033.0
which is based on this one:
http://www.slatedroid.com/index.php?topic=3760.0
offer both market and stock firmware (Pandigital home screen and apps).