Not necessarily. This is specifically a concession to the AI, because the AI doesn't know to pick statecraft. A human player would also chafe at this, because they have no means of expanding to cover their monopoly resource, and they may never get a big enough capital to build an EIC, which would at least make it possible to get it in some instances. Being forced to wait until late medieval/renaissance for your monopoly would be brutal.
Tested that. It just goes back to being a regular old city; you're just conquering it back from a civ same as any other, so no resistance turns.
Spamming settlers is the proper use of this civ, so yes. See above for concessions made for the AI.
It's funny that you are asking for this when this is the only part of the civ's kit that doesn't directly synergize with something else. You went on such a big tirade against synergies. I will remove the dye for now; it can be added back in easilly by re-activating 3 lines of code.
This is pure speculation at this point and I want this civ to be a viable conquerer despite having 1 city. Venice gets supply from puppets and has +5 supply from San Marco's, so nerfing this is something that I would very much like to have evidence for before I do it. If people can demonstrate that they don't need all this supply then I will happily reduce it to 3 or 2.