1. Correct, you cannot use OTP to encrypt a wallet.
2. Yes
5. They provide software for companies to use as an authentication module, so they can allow clients to use OTP authentication.
7. You can use 1 Yubikey for several websites or services
Take a look at this blog for a good writeup on the pro's and cons of static keys vs. OTP:
http://blog.rootshell.be/2009/03/15/yubikey-one-time-password-vs-static-password/