Regarding #2, I started out with a Pi in my cab w/ a zero delay encoder. It works, however, for what you are trying to do, I would highly recommend that you get a PC. I picked up a dual core 3.0 ghz that was only about $10 - $20 than the whole raspberry pi suite that you have to buy, and it gives you a lot more options than the Pi does. Wish I went with this option first. With a Pi, you can emulate up to a PSX. With a dual core, you can emulate a significant portion of Gamecube and Wii games.
I wouldn't worry about space.