Matte has pretty much nailed it, but I'll go ahead and give you my take as well. Always good to take from multiple sources and form your own methods/style. Remember that. Everyone is unique, and so are their dreams. 
1. Yes, keep your eyes closed and as relaxed as possible. Just stay calm and let the hallucinations come and go as you casually observe them.
2. Any type of hallucination that bothers you/distracts you...just ignore. Like Matte said, choose to observe the visuals instead, but don't focus on them. Just kick back and watch them as if you are semi-interested.
3. This is indeed a WILD.
4. Yes, you can lucid every night with practice and mastery. I got to where I was having 20+ lucids a month before. I'm just now getting back into it. There are other members I knew that had them every night and often times, multiple LDs a night. You can definitely get bored with "god-mode" LDs (LDs where you just go around controlling everything, destroying anything in your path, etc), but I used to love to play along with dream plot and explore dreams. I would love to do that every single dream.
Just keep practicing and you will get there. WILD generally takes experience and some practice. It will get easier and easier with time...just keep at it. Good luck with your future efforts!
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