1) I think it’s a bit of both. A big part of Tifa’s character is that she hides her true feelings with jokes (or even straight up lies at times), but sometimes her worries shine through.
2) I translated the whole letter from scratch, and Seph did indeed talk to Dio, according to the letter. Unfortunately, even the original script isnt exempt from some blatant silliness.for example, One hint at Costa Del Sol given by an NPC is that Seph is going to Gold Saucer, is that he “came out of the water... holding a golden ticket...”. Seph is a magnificent bastard though, him having Dio hint to Cloud where he is going, might have been the plan.
3) You are correct, but this backstory was seemingly not set in stone by the writers until late in writing , as there are some cut textboxes in Gongaga that seem to contradict this very backstory. Im always mindful of “canon” backstory when checking Barretts lines that touch on it though.
4) A few of the Choice tags look strange/doubled in text format but in-game the cursor placement makes it obvious its only one choice.
I shall doublecheck all these when i have time!