1: Blinking = Legendary dwarf; This means that they do not pay rent, but they are excellent in at least 1 skill, usually multiple. Dwarves gain experience over time and as time goes on you will see more and more become legendary and blink.
2: Well, technically no there's no benefit to over doing it. As your fortress grows however, you will need to switch it back on to account for the new wealth, I just leave it on and have him as a farmer too so he can do something useful in his spare time.
3: Well, it's probably best to do multiple ideas when it comes to defense. My current fortress has a dry moat with a drawbridge as well as a locking mechanism made up of 3 floodgates to block any entrance in the main path. Their is another 1 square wide path with a steel door(not sure if material matters, I think it does though). This pathway is lined with fortifications allowing my marksdwarves to rain death down on them.
Moat: Prevents normal creatures, it doesn't protect against flying creatures or undead.
Lava Moat: Prevents undead, doesn't protect against flying.
Traps: Sissy way out, plus they can get jammed with bodies, causing your civilians to run out into the fight and try and clean them, which can lead to nasty results. I avoid them for the most part, crossbow weapon traps do not require cleaning but they do use ammo.
Army: Probably the most reliable defense, it can be moved quickly to plug holes you didn't notice, make sure you have them training ahead of time (dwarffortresswiki.net has a lot of info on all this btw) and with decent equipment. War dogs are useful too, you can assign them to your soldiers using the "work dogs" preference for each dwarf, or assign them to a chain near choke points and entrances, usually around corners so that they can't be shot at by ranged enemies. Also you can attach the chains to pressure plates to release the dogs when enemies get too close.
Fortifications: These allow your marksdwarves to shoot at enemies they can see through the fortifications. It's best to not allow enemies to pass directly next to the fortifications cause if they can, they can shoot you just as well as you can shoot them, I don't know the exact numbers but it's exponentially more difficult to shoot into them as they move further and further back, this can also be solved by putting them 1 z-level up from the main entrance level.
Creative defenses:
Caveins: Pressure plate linked to a support can cause a cavein on unsuspecting enemies
Flooding: Preasure plate linked to floodgates can drown non-undead creatures, and flying creatures assuming it's inside.
Gas Attack: If you set up a cavein trap, and block the actual rocks from hitting the enemies (make them fall near them) the gas/smoke will knock them out, this lets you easily capture them for later gladitorial arena bouts.
Allowing for enemies to technically move to the deepest parts of your fortress would probably solve a lot of the pathing problems with goblins you have. Drawbridge traps are too easy anyways >.<
4: Dig channel in the middle of a 3x3 square, build millstone in the channel 1 level below where the 3x3 square is. Once the millstone is built, build the windmill on the 3x3 square. That should do it.
5: Hard to figure out exactly what went wrong. Make sure you built the floodgate in the channel, not on top of it. Even if you had on top of it though, it should have still largely flowed into the channel. I would suggest making the channel wider than the floodgate, 3 squares or so wide would do it. This way, the channel should easily hold all the water, might want to make it 2-3 z-levels deep too, 5/7 and up and the creatures will probably just swim across.
6: Well eventually, the clothes will just rot away. If your fortress is happy enough, your dwarves will be quite happy nudists. Press o, r, and make sure dwarves are set to gather refuse as well.
Oh, make sure you have a refuse stockpile set up, a garbage dump zone would work too, if you make a dump, you would have to go through all the bad clothing and set them to "dump" by pressing d.