Would suggest a Bootable Clone Backup of your current Snow Leopard Drive...
On another External Hard Drive...
By far the easiest way to make such a Backup, is to use something like
or CCC http://www.bombich.com/
That way, should anything untoward happen during the Upgrade or you want to go back from Lion...
you will NOT LOSE ANYTHING.
(Get an EHD that is at least equal to your current Drive...)
Also, Check here for compatibility of 3rd party Software you may be using...
Yes, but only if you do not use Time Machine after installing Lion. If you did then you would have to restrict restoration to your Home folder.
If you install Lion but leave your Time Machine drive disconnected, then you are OK to do a full restore from your Time Machine backup.
If you have a spare external drive or a 16 GB USB flash drive you could install Lion on it so you could get the feel before deciding to upgrade your system. You could also shrink your computer's HDD to create a second partition on which to install Lion.