Update:
re. question 1 and 3.
I decided to rd recycle bin from cmd/admin. It's gone and Windows is still alive. Uff... Since I do it remotely from the other side of the globe I was afraid I won't...

Mess after trying to create ISO.

I used ESDtoISO to create an ISO file from my existing C:\ESD folder and install.esd (sources).
Creation process eventually failed due to "no access to \Windows...