From my short time in the hobby, about a year, and the experiences I have gained in that short time I offer up the following opinions for what they are worth.
I originally found a Taito cabinet when looking for my first cabinet to MAME. Not exactly the same as your cabinet but similar in design and related issues. It was a smaller sized cabinet that originally had a 19" vertical monitor installed. It was originally a 1 player game that had been converted into a 1943 Battle of Midway. It had a small 2 player control panel with a joystick and 2 buttons for each person. It also had the more laid down monitor. I did start down the road to MAMEing this cabinet, but soon realized that it was a good cabinet to get my feet wet, but would not really give me all that I wanted. Before making any radical changes I opted to find a better starting point for my project.
Now to answer your questions based on my experiences.
1. Converting a small control panel is very difficult, it either requires major modification to your cabinet or making compromises that you may ultimately regret.
2. I went with a 20" LCD mounted horizontally originally, but was never really satisfied with it. If you are thinking about a larger monitor you will be restricted by the cabinet and have to make modifications. Also I think arcade monitors are the best option.
3. I went with U360 joysticks and Happ buttons and have been very pleased.
4. Once again if you are thinking about changing the angle of your monitor it will probably require major modifications. Creating new monitor mounts and determining they angle will be a difficult task.
5. You will always get the don't MAME a cabinet that is working or in good shape, especially if you are planning to radically change it. If you are making minor changes that can easily be changed back, then it is more acceptable. Based on some of your questions, I think your will need to make radical changes to accomplish your goal.
So I found a better cabinet to MAME. I went out and found a Mortal Kombat II cabinet by Midway. It had already been painted black and been converted to a NFL Blitz by someone else. It fulfilled all my needs, it had a 4 player control panel, which would allow me to make a very comfortable 2 player control panel with all the items I wanted (joysticks, buttons, trackball, spinner). It did not have a monitor, but the cabinet would accept a 25" or 27" arcade monitor and would be more eye level and upright. I also wasn't destroying anything as it had already been converted and these cabinets are very plentiful.
So I would really take a look at the cabinet and figure out what your plans are before making a decision. Really figure out what size control panel you want, what controls you want on it, what monitor your want and what size, then figure out if that is the best cabinet to be using. It sounds like that cabinet will require significant work to get the end result you are looking for.
Hope these insights help you.