Basics:
Mercs who petition can be put in squads led by a citizen, but they can not lead squads (no foreign legion death squads without sacrificing at least one citizen!), nor will they ever petition again to become citizens. I don't accept mercs. but it's a matter of how you want to play.
Performers and scholars petition once to become residents. Scholars mostly research during that time (research is currently basically useless from a technical point of view, although written books can add some introspection satisfaction). Performers are almost completely useless during this period, as they'll only enjoy themselves in the tavern and soak up relation points from your dorfs so they STILL don't recognize each other after a scant few decades together. "Almost" in that they do occasionally harvest.
After two years (I think) residents will petition again for citizenship, and at that time they will become full citizens, and can thus be assigned any labor (ironically performer/poisoner in the tavern wasn't available until a very recent bug fix), including squad leader (potentially of mercs).
Q1: No idea, and I don't care! They petition to perform, but after two years of playing around they're MINE!!!!
Q2: Probably, as you're eventually going to get weighted down by an enormous number of FPS soakers.
There are various strategies for application acceptance, so you'll have to find your style. Mine is to use Legends Viewer to check up the spouse of each performer/scholar to find ones that are likely to come to the fortress as well and become citizens, with the goal of eventually getting a fully multi racial fortress, with a limit to the number I accept. Another strategy is to look for exceptional skill or fighting prowess. Humans can be equipped with weapons too large for dorfs (although those have to be acquired as goblinite/visitite or via trade: unfortunately human smiths don't bring human weapon smithing skills with them).
If you examine the partying dorfs you can see exactly what they're doing, and sometimes they're actually acting as an orchestra. Unfortunately, there's a significant disconnect between the instruments the dorfs can make (or buy) and the ones the music they know uses, so a lot of the time they're simulating instruments.
A potential risk of naturalized citizens is loyalty cascades as relatives of naturalized citizens come as attackers, although the worst of those probably as been dealt with (a gobbo siege arrives, and one visitor, who's a vigilante out to smite evil, recognized another visitor as a grandchild of a bandit leader, and thus a smitee target, if I remember it correctly. The siege somehow triggered an over sensitive enemy check resulting in total tavern mayhem).