The problem might be that the starter pieces don’t come with rune/upgrade slots. The Fanatic’s only has a defense stat and nothing else. So possibly no rune slot for it to be merged into?
Damage doesn’t matter as I used to save my repair bills while levelling by transmuting to much better equipment.
It’s staying. I saw it a while back somewhere that as it’s an optional extra that only fits in the Utility slot of Amulet Ascended items; it will be staying.
Yes. They’re freely tradable until soulbound.