Can you tell me how you exchange currencies into Bitcoins?
Through various online exchanges or in person using a site called Localbitcoins. Each one has its positives and negatives. Coinbase is certainly the easiest but it is primarily for US residents. Assuming you live in the UK, Bitstamp would probably be the best option. People who use Localbitcoins normally charge a 10% premium simply because the risk they take meeting in person and exchanging large volumes of cash.
I still don't understand how that would even cause a problem.
Does the bitcoin masters send transaction processing to random pools/individuals and thus if that pool isnt doing anything with transactions, the transaction is resent elsewhere after a timeout period?
I've read this question over and over but I still have no idea what you're asking. Please rephrase it.
Namely, for #3, what's stopping people from doing that? Is there a downside they'd suffer or something?
Yes and no. Like I was saying in an earlier post, having 51% of the network would cost you upwards of $100 million, meaning a group of really devoted very, very rich people could tank Bitcoin.
The funny thing is, if you own 51% of the network, at current bitcoin prices you would make about $2 million... a day. To most sane people that isn't a small amount of money, especially to be taking in on a per diem basis. Why the hell would you crash a network that is rewarding you with $2 million a day?
By the time anyone with enough money and time to do this (i.e. governments), Bitcoin will cost billions (possibly more) to overtake. I'm not worried about this, some conspiracy theorists might be, though.
For #2—this one's mostly curiosity—how would you even go about figuring out taxes from bitcoins? Is it literally just converting what you spent to what bitcoins were worth at the time you spent it, or...?
This has not been ruled on by the IRS yet. "Best guesses" include treating Bitcoin as a capital asset (because no country on the planet currently recognizes it as currency). The IRS really, truly doesn't know because it has never encountered this before. See Rama's explanation of capital asset taxation.