Manyshot/ arrowsplit and damage

The key words are Swift and Next Attack

Swift Actions
In D&D3.5e, you may only perform one swift action per turn, even if it is a mental action. So, you would only be able to activate Dislocator once per turn, at the most.

Next Attack
Multishot and similar abilities and effects produce additional projectiles as additional attacks. When you're firing two arrows, you're really making two attacks. So the one you designate as the "first" attack will be the "next" attack for Dislocator. Even if you could activate it more than once per turn, you'd have to activate it before each attack, meaning it would have to be in-between the arrows produced by Multishot, which isn't possible.

I really liked this question because of the idea of the idea of hitting someone with so many arrows that they poof and appear in the air, but unfortunately, it's not possible with that set up. Alternatively, you could hire four wizards of sufficiently high enough level to simulate the effect in battle.

"Look at what my arrows did!"

The four wizards are high-fiving each other in the background while looking mentally exhausted.

Edit: One thing I neglected to mention is that Dislocator mentions your next "successful" attack. Meaning that if your first three arrows miss and your fourth arrow hits, they would have to make a Will save. Still, you cannot force your opponent to make more than one Will save per turn in this way.

It does not auto-adjust.

I agree with John Campbell of the giantitp boards on this one. When the Bone Bow says that it

functions as a composite longbow with regard to applying the user’s Strength bonus to damage done with arrows shot from it. (75)

I see no reason to assume that it only applies to parts of the rules text concerning composite (long)bows and their interactions with the wielders Str bonus.

All composite bows are made with a particular strength rating (that is, each requires a minimum Strength modifier to use with proficiency). If your Strength bonus is less than the strength rating of the composite bow, you can't effectively use it, so you take a -2 penalty on attacks with it. The default composite longbow requires a Strength modifier of +0 or higher to use with proficiency. A composite longbow can be made with a high strength rating to take advantage of an above-average Strength score; this feature allows you to add your Strength bonus to damage, up to the maximum bonus indicated for the bow. Each point of Strength bonus granted by the bow adds 100 gp to its cost.

The only clarity issue here is the pricing of the modifier, which differs between the Longbow and the Shortbow

Each point of Strength bonus granted by the bow adds 75 gp to its cost.

Considering that 100 and 75 gp are the base costs for the composite long- and shortbow respectively, it can be assumed that every point of Str modifier costs the full base price for the bone bow as well, which makes the bone bow quite expensive, especially considering the feat requirement.

Should it?

On the one hand, I'd say it shouldn't, because I can't really justify it in character/in world, and my gut says no.

On the other hand, both (most) archers and exotic weapons are well known to be rather weak in D&D 3.5, even compared to other mortals martials. Giving them a boost (which mileage varies widely depending on how often you Str rating changes) is certainly not game-breaking, especially if they need to burn a feat to use it, on top of those other restrictions.