1: Sure.
2: Not any buggier than recent Elder Scrolls games =P. The real trouble is occasionally going through walls and getting lost in dungeons in DF. This can easily be solved by pressing alt + f11 a few times usually, which moves you back a few spaces. Also, back up your saves occasionally. It's not common, but a save corruption can be a real pain.
3: Not at all. Just go in with an open mind and you should be fine.
4: There're some, but nothing nearly as extensive as what can be found for Morrowind onwards to my knowledge.
5: There's a topic here: http://www.gamesas.com/topic/1058120-daggerxl-the-continuation-ii/ that will tell you much of what you'd need to know about the project. It's basically a big ol' overhaul.
6: I prefer Daggerfall. Just easier to get into for me.
7: It takes a decent amount of time if you want to really explore, get the top spot in factions, and whatnot. It'll take a
really long time if you don't use fast travel. It's technically possible to venture about without fast travel, but the world is randomly generated and not much to look at. Arena requires fast travel, as the wilderness outside cities is endless.
8: Alter the controls before you get into anything. It's easy to change everything so that it plays just like the new games with WASD and mouse look and whatnot.
9: It can, but you need to use DOSbox to get it running properly. I think it's included with the games now, and there are easier installers floating around the 'net that automate the process if you're not certain about fiddling with DOS.
10: Yes, the two games are available completely free in their sections on elderscrolls.com.