Home-made smoker

1- The meat drying out is a very real problem when cooking for so long. When I have smoked with water it has seemed to be less of a problem. I'm sure it also gives a nice thermal buffer but I haven't conducted experiments on this.

2 and 3-
When I built the AB style smoker mine was smaller and earthenware so it would retain heat better. My cheap little hot plate was not able to get the temperature up to even 200F.

With a bigger smoker and one made out of metal I don't think a normal little hot plate will be able to get hot enough. You can experiment of course. It may be that my cheap hot plate was just under powered. In my smoker I adjusted the hot plate temp knob as necessary. Eventually of course it stayed at full on.

If you are interested in more of a project- there are many hobbyist projects for making temperature controlled smokers. They would be more work but for an excellent reward. I was just looking at this one today that uses a wireless router for a web interface and an Arduino for control. Kind of like a homemade sous vide setup but for a smoker:
http://tvwbb.com/eve/forums/a/tpc/f/9270072103/m/5721075126

You can use a gas grill for smoking and indirect cooking. Run the burner on one side of the grill, and place the food on the other. Wrap wood chips in foil, poke a few holes in it, and place the foil pack over the active burner. You can soak the chips if you like. I've never seen much point in that, myself. The water evaporates rather quickly, and you're back with dry chips. Better to limit the oxygen supply to the wood so it will smolder, and place the smoke pack somewhere so that it does not have too much heat applied to it.

It absolutely does matter what kind of wood you use. Avoid soft and sap-laden woods like pine. Stick with hardwoods or fruit woods. Hickory is often paired with pork. Apple and cherry are used ubiquitously. Oak is strong, but imparts an interesting flavor. Mesquite can be too powerful for some people -- I personally use it for grilling, but never for smoking.

Finally, be aware that you are going to have some limitations with your gas grill. It neither holds nor convects heat in the same manner that purpose-built smokers and some charcoal grills do. You are more likely to have hot and cold spots on your grill, so you will need to examine what you are cooking each hour and adjust accordingly if necessary. You will also not get nearly as much smoke to your food, so you will also have to adjust how much wood you use accordingly (though many people make the mistake of too much smoke in their barbecue, so a gas grill's limitation in this regard can be a benefit).