1) Differential cable is the best. Digikey sells differential line driver cables for that encoder.
2) In practice the difference may be seen as reduced stiffness of motor, but no big difference. I haven't heard anyone complain about the results with CUI 102.
3) Yes, if you have brush DC motors, then VSD can be used in DualDC mode to drive 2 axis per one drive.
4) BTW, in single axis mode VSD-E/XE can also drive 40A peak. If you need only 1000 rpm tops, then you don't need more than 50VDC supply. I believe 500W would be enough but its good to have a backup plan of adding power if necessary.
5) It probably won't hurt the motor, but may add more stress to brushes.