1. I haven't used Lu Bu yet but he will most likely be overpowered considering he is the strongest warrior in the whole Dynasty Warriors series. 
Well... I suppose... but seriously... when he's your enemy, he's so goddamned strong, and when he's your ally, he'll scream "What? Me? LOSE?" all the freaking time
And there I am using Zhuge Liang (free mode), a strategist that supposedly stay back in the camp brewing schemes, protecting the goddamned LU BU
He's pissing me off when I'm not him, really.
2. I'm not sure yet but Red Hare looks pretty cool in this game.
good, and I hope no nonsense breeding there. I mean, at least let me get Red Hare just like that, without breeding its successor
3. No.
Still the incompetent allies then...
4. Probably. But I never played Dynasty Warriors 3 Extreme edition so I don't know
Well, in Dynasty Warriors 3 Extreme Edition, it is possible for you to be the Last Man Standing, literally. I played Lu Bu once and saw ALL of my units wiped out, so the only blue dot in the map is me
Not even a single soldier of mine is left. then, a cutscene appears, with the enemy's commander saying I'm so awesome for being a last man standing and still fighting
Only to have me proceed to chop his head off

5. There are some moments where you have to do that unfortunately.
I have to agree with you on incompetent allies. It's kind of irritating when you have to run all over the map rescuing your incompetent allies.
The most irritating problem is the fact that the commanding officer is much weaker than we are
Being the strongest unit in the map, it is only natural for us to be the commanding officer
It is even more unfair when we are being Lu Bu. Lu Bu, the owner of his own private freaking army, has someone else as the commanding officer, commanding HIM
What ridiculous situation is this?