The image target question type is limited by the fact that there's only one draggable target and one image provided for each question. Nothing about moodle prevents more complicated questions with multiple things to drag or multiple images, but this is just how the image target question currently works. In each question, you can only have ONE image and you can only ask the student to select ONE point in that image.
1) There's no way around this. Because the student can only select one point in each image per question, you need a separate question for each part of the image you want to ask about. You can use the "Save as new question" option to make a series of similar questions without having to retype every single question option.
2) If the question text is different for each question, I don't understand the difficulty. If you are concerned that students will get confused, you could put each question on a separate page, but I think moodle does a fairly good job of displaying each question separate from the next question. I understand that it might be nicer to have multiple targets per image to combine related questions, but this is not currently possible.
3) This is an image displayed as part of the question text. It's a bit of a hack in all question types in 1.9 to make it easier to include an image in the question text. It is not the image used with the target. You can ignore it. (It's probably less confusing for image target questions if you don't include images in the question text.)
4) I don't understand what you're asking. Could you clarify? Edited because I didn't notice the attached image because it had a weird file extension. This looks like a bug where I didn't choose the right language string. I'm surprised I never caught this, thanks for pointing it out! It should just say you need to provide at least one target area (i.e., one correct answer), otherwise the student can't get full credit for the question.
5) A single target area might not be enough:
- there might be two separate areas in the image that are both correct
- there might be a shape that's hard to select with a single rectangle, so you can use multiple overlapping rectangles to approximate the shape
Let's say you had an image that contained pieces of fruit in a row with an apple, an orange, and then another apple. You ask the student to find an apple, but you don't care which one they select. You'd need to add two target areas, each one with a box around one of the apples in the picture. Imagine all the selected target areas layered on top of each other to produce the correct answer.
Your desire for a more powerful/flexible image target question is not unreasonable, but I don't have any plans (or time) to work on this for 1.9 (or 2.0). I think there are plans (by people other than me) to develop an improved version for moodle 2.1, so there might be a better version in the next year or so.
You could also look at the dragdrop question type, but I think it hasn't been updated in awhile and is a little buggy with 1.9. I saw a recent bug report that said you can only have one dragdrop question per page or it doesn't work well, but I haven't tried it out myself. You could give it a try, though.