1. Do you think "work sts. as they appear" is asking you to work in stockinette stitch, essentially?
Essentially, you're right. If the stitch looks like a V, knit it. If -, purl it. (So in stockinette stitch fabric, the RS would be all knits & the WS all purls when knit flat. When knit in the round SS is all knit stitches.)
2. If I'm working in the round can I just keep right on knitting those yarn overs on WS rows?
Yes because a purl on what would be a WS row when knit flat is a knit on the same row in the round.
3. What the heck do I do with the ktbl's on WS rows? Since I would ptbl if I was working on the wrong side, would that be the same as ktbl on WS rows when working in the round?
A ktbl on the RS is the same as a ptbl on the wrong side. Both create a twisted stitch with the right-leg crossed in front of the left-leg. You're creating a "column" of twisted stitches.
Edited to add the photo.
Edited to make photo link.