Yes, but from what i understand it shutters with 1080p content, i think. Never tried it, but give it a shot
Yes, XBMC does have a Live version which uses a minimal Ubuntu install with no GUI (i`m talking about the underlying OS, not XBMC) It can be run from an USB stick or CD (with some limitations) or you can install it on the HDD/SDD. Here, Live and ATV : http://xbmc.org/download/
But i don`t see why using windows is a hassle. Just turn of automatic updates, and you`ll never see the actual OS since you are in the XBMC app everytime. And use Sleep instead of rebooting so you never see the OS and takes seconds to boot.
And if you don`t surf teh internets with it, don`t even bother with AV software. My HTPC has never seen such a thing
The issue with Live is that you loose BD disk playback support and HD audio. The first because XBMC can`t play Blu Ray disks (it can`t decrypt the BD protection, not yet anyway) and only the DS Player branch can bitstream HD audio atm. There has been some progress on the Linux front with True HD (not sure if they did it for DTS-HD Ma) atm, but it`s not yet included in XBMC. Will get included in the new AE branch.