5) Sequel
It seems that the game engine doesn't really allow for that, and as rewriting all the same mechanics doesn't interest the programmer, the next Illwinter project won't be Dominions 4.
The other Illwinter project has been mentioned once, thus far, and we have no idea what it's about.
6) Should a sequel, expansion or any other major upgrade be made, is it likely to be available at a discounted price to those who have purchased Dominions 3?
No. Dom3 costed just as much for those who bought DomII, and that was just as expensive for those who had Dom:PPP as for those new to the game. The patches have added three nations thus far (Lanka, Eriu and Tir Na Nog), and the next patch (which might already be available if not for a badly timed hardware failure) will add at least two more (Fomoria, LA Serpent Cult). Modding capabilities have been slowly but steadily improved via patches, nations have received new spells, heroes and other goodies, etc. Bugfixing hasn't been as active as some people would like, so it isn't all milk and honey, but I doubt there will be expansions or major updates outside of patches.
7) I don't think the development is going to change radically. The community here helps on balance-related issues, and most MP games seem to use community-made Conceptual Balance mod. There are also few visual mods available. However, the actual user interface can't be changed, nor do I have any knowledge of this changing anytime soon.
8) Dominions II is still sold for its original price, so I doubt Dom3's price is going down. Shrapnel Games periodically holds some kind of a sale, with games available for varying discounts. The last such event gave Dominions 3 a hefty 9 $ discount, but I don't know if there will be any such events before Christmas, and I'm not even sure if their holiday sales are annual...
You should remember that everyone here likes this game VERY MUCH, though, and those who didn't like it aren't found here. The gameplay won't change from what you had in the demo, but there will be so many nations, each with its own story, that playing even to find all of those out will be a pleasure. The manual is also a big help, listing all summons and all spells via path requirements, and quite often giving more detail that the nice in-game descriptions.