You have a lot of questions here, but I think the best place to start is with our
Munchkin Flash demo, which is designed to be a quick game intro and shows a couple of turns for each player.
It's not 100% like the game -- it only has two players, and it uses the old starting rule of two cards from each deck, instead of the new four-card rule that you've played with. But it certainly shows you the gist of the game.
If the demo doesn't clear up all your questions, please come on back and ask away; that's what this group is for!