From the UK user's manual pg. 112:

1. In idle mode, open the application list & select Settings/Wireless & Network/USB Utilities/Connect storage to PC.
2. Select OK to confirm
3. Connect the SGS2 to the PC (or stereo in your case)
4. When connected, select Connect USB storage
5. Select OK to confirm.

You should now be connected to your stereo & its controls should let you browse through the folders on the card. Note that the card will probably have to be formatted as FAT32 as opposed to efs or whatever the SGS2 uses as its native filesystem.

 

Good cards come pre-formatted as FAT32, so you shouldn't have to format anything.
SGII has EXT4 or something as it's filesystem, and supports FAT32 cards, if the card isn't FAT32, the phone will ask if you want it to format it for you (this will wipe all data of course)

 

No idea

 

I use this feature all the time to play music via my car stereo and can confirm that you will loose the function of any apps that you have stored on the SD card memory. It will normally give you a message (on the phone screen) when you connect to the USB stating that some features of an app have been disabled. Another way to check is to view your apps screen menu when connected, you will notice that some of the apps are no longer present.

I've came from a HTC desire to the Galaxy S2 and I think the software HTC employs to connect to USB is much slicker. It allows you to select a default setting or ask which function you'd like whenever you connect to a USB. Samsung should really has a similar feature because at the moment it takes a few too many touches of the screen to USB connection for mass storage.