On your questions.

1. You do not have to encrypt the wallet in order to stake. In fact, the opposite is true. In order to stake, the wallet must not be encrypted (or of encrypted, must be unlocked). You encrypt the wallet for your own security, especially if you use insecure environment or OS.

2. There is no point to encrypt the wallet if it will be unlocked without you entering the password (which only you know). See 1. In such cases, simply do not encrypt the wallet.

3. This is good news. It means that DMDv3 was able to recover all of your keys (and addresses), but becaus ethey are in different format, transactions and address book entries cannot be preserved. In this case, run the wallet with -upgradewallet (or if useing the GUI, the same action is in the Repair Wallet option).
At this point your wallet should behave like normal. But it will still be one large file. In order to shrink it to the minimum, the more agressive -salvagewallet can be used.
Please note both could be unsafe in some circumstances, especially if your wallet was messed up (but the message you cite indicates this might not be the case).
You can export the private keys, with "dumpwallet" (in console) or manually as explained.
Then remove wallet.dat and import them with "importwallet".

If you imported your private key(s), then your addresses are still there, but because you did not import the address book you don't see them. You can verify what addresses your wallet thinks you have (only those that ever received coins) with the command "listaddressgroupings".

3c. It should be gone after -upgradewallet.

PS: As helmut mentioned, if you want to be safe, use only the exported keys and do not use the old wallet.dat file. See "listaddressgroupings" for the list of what addresses you have there.