1. Yes.
2. Yes.
3. You can do it quite cheaply. It is feasible to run on a ~$5/mo VPS (Vultr, Linode, DigitalOcean, Scaleway, etc) if you are willing to suffer potential downtime if things go wrong on that one machine. Eventually you might run out of image storage, but that can offloaded to any object storage provider such as those offered by the cloud hosts I listed or ones run by e.g. AWS (S3), Wasabi, Cloudflare (R2), etc.
4. If you know nothing about servers, linux, docker, postgres, reverse proxies, netwroking, http, etc. then it may not be worth it to you. I like the idea of having complete control over what servers I federate with. I like the idea of having a built-in archive of everything I read and write on Lemmy. Running an instance is of minimal cost to me because I already run software (including postgres, the database Lemmy uses as well as my own email server) for myself so it is low impact to add just one more service. Ultimately there are so many variables that you have to decide it for yourself.

If you want some general advice on how to set things up or certain things you need to make sure are done right so your instance works feel free to reach out. If you want to live on a smaller instance feel free to sign up for mine to see what it might be like.