Technically, yes. However, since Step Motion instances your frames, they would all be connected to the same armature, unless you create a separate armature for every frame.

Yes! Feel free to use any modifier in combination with your frames, every frame is treated like a separate object, you could even animate hair!

This is depending on how many frames you create and how dense your meshes are. The Step Motion Preview setup slides through your frames by instancing them, this way it is pretty lightweight. However if you have a lot of subdivided meshes with for example hair modifiers, it could get pretty tough for Blender.

Yes! When you create a sculpture outside of Step Motion, assign materials to different faces and use 'Add Object' to use it in Step Motion, it'll at first get rid of your materials to make use of the Onion Skinning function. When you finish your animation and press 'Finish Step Motion', you can bring those materials back. Just make sure you uncheck 'Use Material' in the Geometry Node of Step Motion Preview. Follow the tutorial for more information on that.