A few questions..
1) I could have sworn I read somewhere that you can only have one Curse, so you can't be both Possessed and a Werewolf (for example), but now I can't find reference to it, am I right or did I make it up?
I'm not aware of any limit on curses.
2) Do Werewolf Hero's take damage when they attack, a search on the forum history seems to indicate yes, though a fair few posts indicate no. Is there an official answer? (we have been playing that they do take damage)
I don't recall an official statement on this, but the card says "engage in one Fight Round with the nearest Hero". There is no indication on the card that you gain a special ability to ignore damage, so it is safe to assume that you take damage as normal.
3) If 2 Werewolf Hero's are closest to each other, do they both attack each other as werewolves or does one attack and then the other? We played the former because it seemed like more fun and saved us having additional fights. If the latter, I presume it goes in player turn order?
Technically, you should handle each one separately, so two attacks. Again, the question is whether there are any instructions to change the default rule (there aren't).
Also, it's possible that the 1st Werewolf Hero could be knocked out in the fight, which would cause the 2nd one to end up attacking a different target.
However, I agree that it sounds like more fun (and easier) to just have them attack each other. As long as it's a house rule, maybe have them fight two rounds instead of one.