1500 hours a month - so for a small instance that works out to 2 instances. Eli below has it right - you can scale that up as well and get a smaller number of free instance time.
Can you also choose to use (more than 2) extra small instances? They provide better bang for the buck than the small instances.
Sure. And you have 10 of those MSDN subscriptions, one for each developer. You can't use say 20 small instances for one site, but you can use 2 instances for 20 separate sites/services.