Yes, you need the master cylinder. The stock fox one won't cut it with the 4-wheel disc brakes.
I wouldn't buy the crate motor personally. You can build a much nicer motor for cheaper. You could get a set of AFR heads ($1300), an intake ($500) and a cam ($325 for a custom) that will blow that engine out of the water. With the remaining $1675, you can rebuild the bottom end and get all of the supporting parts (MAF, TB, injectors) to support the extra power.
My H/C/I 5.0 gets around 22 mpg on the highway and 17 in the city. It makes right around 300 rwhp with the aforementioned AFR heads and has 3.73s. Get the 3.73s.
Yes, thereabout. I usually shift mine at around 6k. It would pull longer, but I don't want to risk valve float, which is pretty easy to do with a hydraulic roller.