1. Why not? I suggest cheato... currently don't have a picture on hand, but just do a quick search on the google images and you would be able to find them.
You can of course try other macro algae, but in a nutshell, cheato is safe to cultivate coz it won't turn asexual, is able to pull out nutrients from your tank quicker than other algaes, and can also grow pods.
2. You can choose to have both DSB and Cheato, or either one, no hard and fast rule. DSB works best using grade 0 sand and at 5-6" deep.
3. You can choose to switch it on either 24/7 or do a reverse photoperiod from your tank's lighting period to balance the ph. Any normal white light should be sufficient. LED should be fine too. This one got to confirm with the lighting experts, I'm not too sure.
4. Depending on your choice to ans 2. I would say as high as possible.
5. LR is put in sump as bio filtration for bacteria to colonize. As it is bulky and your sump is small, I wouldn't recommend it.