I can only answer the last question, but you already basicly answered it. The valve controls the water level in the phractionator, you want the water level to be topped up at the bottom part of the T where the foam exits.
As for the other questions, I just don't know, it would take some experimenting to determine the answers to those things, but if you check out Ethan's thread in that link I posted at the begining of this thread he goes into some detail explaining flow rates and sizing. He does have another thread in that same forum with plans for a mini version you might want to check out.
I like to experiment with things, but because of the size of the plumbing and fittings the components are kind of pricey, so it's nice to be able to just copy the design and know it will work.
There are other versions out there, some that use an air pump instead of a water pump to make bubbles, and some as John Huff mentioned earlier in this thread, use no media in the tube, just splashing water to make the foam. I liked this one because even if for some reason it didn't make foam, it would still function as a trickle tower.