1 - It technically is illegal and so I generally try to stay away from it - opting for fantasy/chibi/what ever the con is for as a stylistic theme rather than riding on popular characters - though as ~raerae said doing a one time commission of a character is usually alright, and it does depend on the convention whether they do anything about selling prints of copyrighted characters.
2 - I don't typically look for prints, and most often get stopped looking at cute trinket type things - like bookmarks, charms, magnets, etc. But I know a lot of people like prints - so I might go for a combination?
1) This depends on the convention and how active the company is at protecting their property. Usually they don't mind one-off commissions because it's one thing and you're selling your service, not the character. But selling prints is another matter. I'd check the company's policy and convention policy.
2) Something good and fantasy based, usually.
3) Here in the US it varies state to state. But generally if you're registered as a business, you can deduct the expenses.