That depends. Larger corporations tend to avoid asking things other than "Did John Doe work here as title Z from date X to date Y?" However, many smaller companies aren't legally savvy and will divulge too much information, if the other side asks questions they probably shouldn't be.

Not true. This is often included the questions asked by background check companies when they confirm previous employers. Its up to the previous employers whether they provide that information. I have seen both (ie company refuses, company provides) in my own background checks.

... so you probably want to think twice about outright lying. There are many ways to avoid lying but still getting your point across. In most cases, employers will be scared off more by someone blatantly lying (which would also be cause for termination in most cases) than someone delivering a compelling case for why they are worth more than what they were previously paid.

As a contract recruiter I can't imagine asking this during a reference check or employment verification. I'd have gotten fired so fast I'd still have the phone in my hand on the way out.