SPS webpage can detect you have installed the Office 2003 and run local dll to implement some SPS function, e.g. multi-file upload only works when you have office 2003 installed.

Integration with Office XP is gone.

You will get guys telling you that you can integrate with SPSv2 if you install a backwards compatible document library - but that's really just putting a bit of SPS 2001 on the server.

Believe me, check-in, check-out, which are themselves very basic, are not available from inside Office XP, or even from the context menu in Windows Explorer.

The ONLY option you have is to use the web interface to check-in or check-out.

There is no restriction in place except that any storage consumed beyond that provided by the base offering may have an additional monthly charge associated with them.
The only files restricted are those ending with the following extensions: .asa, .asp, .ida, .idc, .idq.  Microsoft reserves the right to add additional file types to this listing at any time.  Also, no content that violates the terms of service may be uploaded or posted to the site.

A document library is where you upload your core documents. They consist of a row and column view with links to the documents. When the document is updated so is the link on your site. You can also track metadata on your documents. Metadata would consist of document properties.