1) Yes. It will work, but you may never see the perks of the new standard.
2) Probably not. Thumb drives are FAT32, should not be NTFS or defragged for reliability's sake, and are just being paranoid. A 64G thumb drive is over $130 and you can get a 1TB spindle drive for under $80. If you're that paranoid, get a cheap HDD and do your thing.
3) Don't be too afraid. Big brother doesn't really exist and your ISP isn't watching bits. Most "finds" are far after something has gone very wrong and the confiscated items revealed more and made public. It's usually "upon further investigation, Falco77 had 1.95G of Metallica..."
4) Whatever you're doing, knock it off dude. If you don't pay for movies or music, then try it so the rest of us get content in the future...but that's still cool. If you're paranoid about backing up stuff, then it's wrong. I'll back up 200TB of movies without worry. On a thumb drive, that's pictures. This isn't a backup question is it? It's moving farm animal pics...or worse.