It's fantastic! Addressing your questions:
1) Used it for the past few months, playing the three freeby games, motogp 2, and ghost recon.
2) Lag is dependant on both the quality of YOUR line, and the quality of the line of the person that hosts the game. If either is lower than an unused ADSL line, things can get a bit hairy. However, different games cope differentely with it. MotoGP just gets on with it but ghost recon has serious gameplay problems with high lag situations.
3) MotoGP was most popular until it's sequel came out. This is because it's bundled with the kit. However, most of the online games will allow you to play someone somewhere any time of day or night, so it's rarely a problem.
4) Yes, wholeheartedly!
5) You don't NEED to, but it can be fun. In ghost recon, it's useful to tell others where targets/threats are, or to co-ordinate groups. MotoGP it's just fun to hear people scream at you when you've unseated them on a 150mph corner ;)