each block (currently valued at 50 BTC)
50 BTC is the reward for verifying a block. Within the block is a transaction from "nowhere" to a new address totaling 50 BTC (a gift from the block chain gods). Also within that block are numerous other transactions, all of which originated from some address(es) to new address(es) of various amounts collected from numerous unknown people.
block address can have it all or part of it's ownership transferred to any number of different recipients (pubkeys) through transactions.
And all of these transactions must be verified in a block before it is confirmed or accepted by the entire network.
Are transactions recorded against the block
Every valid transaction must be recorded within a block in order to be confirmed/accepted by the network.
if you've got BTC amount of 10, of which 5 came from
Block Address A, and 5 came from Block Address B and you transfer all 10 BTC to another 'person' - are two transactions generated ... ?
Only one transaction is required. Though, what you describe is not a typical transaction. Typically a transaction is from one or more addresses from a single person to another address of another person and the remainder is send back to a new address of the first person (spare change).
Imagine you want to buy a chocolate for 8 pesos. You give a 5 peso coin and two 2 peso coins. The recipient returns a 1 peso coin. In this scenario you sent 9 coins from three 'addresses' to a single recipient who returned 1 coin to you (a new address). It's not a perfect analogy, but close..
If a block is eternal - how can it ever become 'spent'?
A block is a collection of transactions. Each transaction is from some set of addresses to another set of addresses. The balances of addresses are 'spend'. Transactions are recorded in blocks and both of which after an hour or so of uncontested confirmation become part of the permanent record.
The wiki indicates that Sathoshi's paper allows the merkel tree to be 'pruned'
Perhaps you should wait for the above to gell before diving into pruning the blockchain.
but what is to stop me creating multiple transactions of 10E-8 back to myself
You can create the transactions and you may choose to pay a transaction fee. If no miner bothers to lock your transactions in a block, then the network will never accept your transaction. Your transactions will be forever (or for a long long time) unconfirmed.