Minecraft – How to prevent hostile mobs from spawning

Not counting mods, the best way I know of is to make sure the area you're "protecting" has a floor made of blocks which don't allow mob spawning.

Any transparent block will do the trick, such as glass or snow, and in your case maybe Slabs will be most suitable.

For more in-depth information about spawning and spawn conditions, check the wiki: http://www.minecraftwiki.net/wiki/Spawn#Mob_Spawning

No they do not.

Wolves spawn and are tamed as passive mobs (I'm unsure whether this means that they will prevent new passive mobs from spawning).

Hostile and passive mobs have a diffrent mob cap. They do not share this cap.

The only time that a wolf will help prevent hostile mobs from spawning, is if you attack it while it's not tamed, so that it becomes hostile, at which point it will join the hostile mob cap list and will behave like hostile mobs (despawning etc.)