Yes, most players have no problems with Lightning if (and only if!) you play back HW-decoded stuff. With them, no image quality degradation will happen.
It can to a certain degree. Unfortunately, it's still incompatible with Lightning; this is why I in no way recommend it for Lightning users, unlike for the older 30-pin ones.
Thanks.
Hoping xbmc gets updated sometime in the near future, but I'm not expecting it anytime soon, when I asked them about it, it seems like a lot of work for them and its going to take a long time