Thankfully, if you ever blow away something important, Dropbox gives you an undo. (Create a file, let it sync, delete it, then go check their website.)
No, though deleted files/revisions are purged after 30 days unless you have a paid account.
True, however in a fast moving environment, that's only of little consolation if I have to look back 10 days and 20 versions to find the missing content. It becomes a trade off: do I do the work again or aim for the perfect merge. Unfortunately, the first often wins.
... Use Google docs.
True, but the formatting options aren't very good. I know, I'm picky, but it just doesn't cut it. It works, but isn't perfect.