I have a DKC-850 with MKIIxgPRO I use the "add-on" setting to get the best of both worlds (I'd be happy to elaborate if interested).
For question #1, there is another way to play these great arrangements (copied from my prior post below):
One really excellent feature of the MarkIV, DKC-850, E3 models is the ability to play Smart Pianosoft music with the associated commercial CD. Having the piano accompany favorite artists/albums makes the Disklavier really shine. Having those files (.mid & .wav) files synced into one .wav (wave) file using the MID2PianoCD program played from a laptop/PC/home server/iWhatever to the piano with the iPhone/iPad Disklavier app (or the DKVBrowser program) is truly marvelous! (google MID2PianoCD for the free utility).
So with the MID2PianoCD utility you build your own library of individual songs/albums and play them directly to the DKC850 and then put your CDs and floppies in a safe place. There are a few caveats though:
1. Not all .mid SmartPianoSoft files will sync with the .wav files from the commercial CD. About 85% of mine have. It has do to something with how the DK head unit adjusts for pitch and timing in the fly when it initially "Registers" the piano (midi) and CD (wave) files together. The MID2PianoCD utility can't do this on the fly. So in those cases, I simply put in the CD and play the SmartPianoSoft file off my USB drive. They sync perfectly.
For question #2, I believe answer is yes. The "registering process" has smart software that adjust for this between the piano and commercial CD audio.
For question #3, I always use MarkIV designation when shopping on Yamahamusicsoft because that reviles the MOST options for music purchase. In essence as long as you have a USB floppy drive (most should work great, yet Yamaha only suggests theirs for absolute reliability and by the way, their floppy drive appears to have software or a chip that WON'T allow owners of some SmartPianoSoft floppies to make back-up copies to other media. Others have found the utilities on this site (under files above) work just fine with SmartPianoSoft floppies on NON-YAM USB floppy drives to back up their diskettes. See below.
Buying the Smart Pianosoft albums through Yamahamusicsoft.com in download format let's you accomplish the process in #1 above easily and avoids the silly (and delicate) floppy disks. However, many titles from Yamaha, Hal Lenoard, Sheetmusicplus (or eBay/Amazon) are still on 1980's style 3.5 floppy disks. For some reason (probably outdated notions of media copyright protection) the floppies can ONLY be backed up to the memory on these pianos and not directly copied to another floppy for safe keeping or to extract the .mid (midi) files for the process mentioned above. I hope Yamaha and their distributors will take a page from Apple et al and let people use the music they purchase they way they want then provide more titles/albums via download from their sales websites.
After all the more albums/titles/songs made available the more people will love these amazing instruments and the more Disklaviers Yamaha will ultimately sell.
Thanks once again to the originators of this fantastic forum and to all of those who participate making it the one of the most relevant resources for Disklavier owners, dealers, and technicians