My spoiler answers...
1. It was to make the geisha dolls more lifelike, and a hot seller.
2. I understood them to mean it was fake, but then again, I think I saw blood. Though, why'd he want to see it then?
3. Security. They were dubbed there, and the ship captains or whatever they were, used them for defense. Just Togusa hacking as far as I could tell. Pretty good hacker for a guy who hates technology. Maybe if they had the AI Tachikoma's helping, I could understand. It did appear that 10 years had passed between GITS movie 1 and 2. (I missed the opening, so I'm not sure if a date was mentioned). The characters seemed older, so maybe Togusa got with the program so to speak, though it's hard to believe the characters could survive 10 years in their jobs considering all the danger they get themselves into.