OK, my attempt at answering your questions... some I cannot answer as I do not have enough experience crocheting or felting.
I used Lion Wool (100% Wool yarn) - http://www.lionbrand.com/yarns/lionWool.html
As for the felting of the entire hat... I don't know because this is my first felting project, hopefully someone else can answer your question. If you want to make it warmer, you could use fleece to line the hat and attach it with a blanket stitch. That is what I was thinking about doing for a different hat, for someone who lives in Colorado. The kid that's receiving this one lives in Cali, so he doesn't need a really warm hat.
I attached the felting yarn in 4 horizontal, 5 vertical per row of stitches.