1.) I think the janky, bullshit, trolling stuff would be very popular among friends playing together.
2.) I imagine no dedicated hosting from the company, so all the private servers can have their own rules. With moderating simply happening on an ad-hoc basis.
3.) Ya.
What I actually had in mind was that a number of joints--similar to toribash--can be manipulated over a variable amount of time, let's say 1-5 seconds depending on the type of action that's taking place. To prevent TOO much jankiness, each joint not only has a defined range of 3d motion, but is also restricted to a very specific distance from any attaching joints to prevent intentional rubberbanding. Some of that would be able to be modified in the options on a per-server basis so that if you want to allow the troll stuff, you can. (Along with having an option to turn it on/off in the editor so you can be sure your animations are within whichever server you prefer's rules.)
I've kind of just thought about this concept for a long time and have concluded that allowing players to have any control of stock walking animations is terrible idea, and thus will be off by default, but hey I'm sure some people would like to make their own so lets kick in it there. This is obviously a physics-oriented game, and as such there's gonna be a disconnect between the players' animations and how the physics of the game are acting on the players avatars. I figured the best way around this issue to take a combined approach. Using a modified version of Red Dead's Euphoria engine perhaps, the game will spend perhaps 0.5-1 seconds attempting to get the player's avatar back to the idling or walking animation (depending on keyboard input), it's either successful and you assume full control of the character again, or your character falls down in any number of ignominious ways, and you're forced to wait until it gets close to assuming the idle animation again for you to regain control--I say close, because I think you should be able to dodge (however shakily) even if things aren't quite under control yet. Of course, while player animations are playing I don't think the physics will be acting on the player avatar as a matter of both fun and practicality (maybe gravity, hard to say in theory what works best.) Also, this benefits the serious side of gameplay by basically knocking out your character if you do some crazy animation that leaves your character in weird position.
Of course, then there is actually the matter of hitting and getting hit. Similar to being out-of-position to the walking or idling animations, when you get hit I imagine that your avatar rag dolls momentarily--long enough to be exploited by the wily opponent while you recover, but short enough that you have a chance of dodging the next attack or raising something to block it. Which is a great segue into blocking, if you block someone, they rag doll for much longer than getting hit allowing you to exploit them for a parry-riposte counterattack with less a chance of recovery. I imagine that getting blocked is worse than getting hit, because then in terms of gameplay if it were reversed whoever got the first hit in basically wins.
*A note: similar to M&B you're only blocking when you're performing an animation. If you both attack and clash weapons, you'll both be thrown back. If one attacks and the other blocks, the defender wins. If you attack and your opponent idles and you clash weapons, you actually beat the opponent's blade, knocking them back.
Damage calculations are a degree finer, and I think that the best solution would be to have a M&B system with several damage types that affect armor differently. Like wise, damage would scale with location, so if you get stabbed in the head it's a lot worse than getting stabbed in the toe. In an ideal world, it would be nice to take velocity and acceleration into account instead, with a dampening effect based on armor and quality of hit, but that's probably a whole lot of extra calculations of slow-down without a substantial increase in fun.
The advantages of this system are that you put a lot of control in the hands of the players and allow for emergent gameplay. Things like hooking your axe over your opponent's shoulder and pulling him off balance, beating your opponent's blade and injuring him in the same animation, or jumping over an attack become possible.