1. I'd like to know the ruling on this one too. I had the same question after playing the game last weekend.
2. After losing 1 VP per damaged Empire card, you flip them face up so you can count their banners in final scoring. So, having damaged cards at game end doesn't impact your banner scores.
Yes, but you're still losing the VPs for damaged cards. I am guessing so long as you announce that you are repairing the damaged empire cards before the last turn is concluded and end game scoring starts, you can avoid losing those points.