Wow,Norn answered the question pretty well,so I guess I'm just spamming with this post.I have but one thing to add:Chameleon whip is unbreakable and heaps of fun.I highly recommend it.
I'm not sure whether or not the flaming mithril sword is better.
The room occurs in every game,'tis very annoying.
1)The only negative effect is that you can't go back into New Attnam unless you are strong enough to kill them.
2)Pretty damn strong.Richel Deco will pwn you if you're careless.
1)I personally would,but it's up to you.
2)I always wish for artifacts such as Saal'Thul or Vermis.Some may not be wishable,but I'm not sure.
Now keep in mind that I'm not exactly a pro at this game and the farthest I've ever gotten is GC 6.