Yes you can.
No.
Under My Xbox on Xbox.com or your dashboard you will see a spot to create your avatar.
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No, just recover your gamertag on Xbox Live.
No. yes
yes
Yes but Microsoft call it an avatar
They may just remove the arcade entirely, and make the Pro the main 360.
Yes. it depends on the year make of the model. the old arcade as a power plug that clips into the xbox instead of sliding in. which is much better but it overheated due to it was made of metal
Yeah, just recover your gamertag over Xbox Live.
To install "The Elder Scrolls IV: Oblivion - Game of the Year Edition" on your Xbox 360 Arcade, insert the game disc into the console. The system will automatically recognize the game, and you can choose to install it to your hard drive for improved performance. If you don’t have a hard drive, you can still play directly from the disc, as the Xbox 360 Arcade model does not support game installations without one. Make sure your console is connected to the internet for any potential updates.
It is a camera that will have your avatar copy the same movements you make. Also it allows you to have video chats with other gamers over Xbox Live.