I know what basically happened, but I'm not clear on why or how certain things occured, so if someone could clear them up it would be great!
1. For how long had their been a general acknowledgement that Germany was heading towards eventual unification? Was it perceived as a matter of time from one point on, or did people in the 1800s think that Germany may well have stayed fragmented indefinitely?
Germany was long seen as a goegraphic and linguistic expression, possibly cultural, but never nationalistic. That began to change after the French Revolution helped spread nationalistic ideals throughout Europe - not that they weren't spreading among intellectuals beforehand.
Still, unification was never really perceived as a mater of time, until after Prussia's defeat of Austria in the Seven Weeks' War in 1866. After that, it became fairly obvious that it was a matter of time before the territory was unified under Prussian leadership, but there was always the chance that it may not be. The manner in which that unification would take place was also up in the air; several German states eventually joined more out of fear of Prussian arms than any nationalistic fervour, or fear of outsiders.
2. Legalistically and politically, how was unification achived? Was there a formal annexation process agreed, did any German states (bar Austria) have a genuine mechanism to opt out? Did any try?
I'm not too clear on this myself, other than the fact that Germany was a federation. The central government had a certain amount of power, but state governments remained under their previous leaders and had much autonomy in certain fields. Exactly how much power and in exactly what areas, I don't know.
3. Was it always Bismarck's intention to achieve unification?
This is actually a very interesting question. Bismarck muddied the waters after the fact by claiming to have deliberately provoked all three wars fought under his chancellorship - with Denmark, Austria, and France respectively - in order to achieve that very goal. While doing Grand Admiral Thrawn and Darth Sidious proud, this story is a total fabrication; Bismarck was a pretty fantastic opportunist, but no master puppeteer leading the world on a string.
Wat Bismarck's actual plans were is a matter of interpretration then, but I think it's safe to see that an eventual German unification under Prussian leadership was his primary purpose. I think even he was stunned by how quickly it came about though, and probably a little uneasy, as the end result probably weakened Prussia's position in the federation more than he would have liked. I don't think he actually wanted a war with France in 1870, nor complete unification that early. He probably wanted to slowly absorb German states over time, and provoking France to the brink of war, frightening small German nations, would have enabled Prussia to gobble up a few more princely states for the North German Confederation. Not all of them.
4. How was unification received among the people?
This I have no idea of. I would imagine positively by the common man and many intellectuals, but vested interests may have been pissed.