1) Not sure how a larger box would reduce dust. As long as the box is filtered to keep dust out, and has adequate airflow, and size should work.
3) Yes, as long as the shields are properly terminated and everything is grounded properly.
4) Yes, as long as the pump is powerful enough. Most cheap water cooled spindles are very restrictive on the flow rate, so you don't get a lot of water flowing through them anyway. If I had a water cooled spindle, that's what I'd do.