Yes. All versions of IIS have supported basic authentication.
By default, the accounts logging on must have the Logon Locally logon right, although this is configurable through the LogonMethod ADSI property. Refer to Chapter 13, "Security Administration with ADSI, WMI, and COM+" for more information on this property.
Limited. The request can leave the Web server and access resources on a remote computer so long as the account exists on both computers and the passwords are the same, or domain accounts are used. However, if Basic authentication is used in conjunction with Active Directory, full delegation is supported.
No. However, if Active Directory is used, delegation is fully supported.
All. Basic is a well-supported authentication protocol.
Yes.
Basic authentication is defined in RFC 2617 (available at http://www.ietf.org/rfc/rfc2617.txt).