List styles - chapter heading

The answer to (1) is very simple. In your multilevel list, at Level 1, use "One, Two, Three" as the "Number style for this level." Type "Chapter" before it. For Level 2 and below, check the box for "Legal style numbering."

The answer to (2) is found in http://WordFAQs.mvps.org/TOCTips.htm#UnnumberedHeadings. The bottom line is that you use two styles, one for the numbering and one for the chapter title. One of them will be Heading 1. If you need to use the chapter number as the "chapter number" in page numbers or captions, then you will need to use Heading 1 for "Chapter One" and a Chapter Title style for the actual title. If you do that, you'll need to edit the TOC to include Chapter Title instead of Heading 1 for the first-level headings.

If you don't need to include the number in page numbers or captions, then you can use Heading 1 for the chapter title and a Chapter Number style for the actual number. Whichever style is used for the numbering will need to be linked to Level 1 in your multilevel list.

A couple of tips about using "Chapter One" with no following text in a multilevel list:

1. You'll need to set "Follow number with" to "Nothing."
2. Since your title is centered, you may be tempted to set the "Number alignment" to "Centered" (this is more tempting when the chapter number is just a bare numeral). Don't. Leave the number position as Left and format the style as centered.

As for (3), once you've set up your two styles, you can apply a bottom border to the style used for the chapter number.