2) Depends what they're trading, and how much capital they have to start with. If our inventor can only buy and sell the S&P 500 they can't make a whole lot - it generally climbs at a pretty steady, known rate; when it moves dramatically it's usually a fall rather than a rise, so you need to be able to short to take advantage of those moments. If the inventor's buying and selling junk bonds, or advanced derivatives contracts, they can make money pretty quickly for as long as they can find people willing to trade with them.
Also the total value available to be made in HFT is pretty low (on the order of tens of billions of dollars/year). To make serious money you need enough capital to be able to make somewhat longer-term investments.
3) Prices for mature, stable, dividend-paying companies would increase a little bit so that their P/E matched that of Treasury bonds. Futures contracts would probably stick around (although they're now essentially just another form of loan) but options would disappear, because you'd have to be stupid to buy/sell them.
The effect on the industry is that there's a lot less inefficiency available to exploit, so much less money to be made. The industry contracts; market-making becomes a boring way to earn small amounts of money, like car insurance. The smart people go elsewhere.
For riskier investments and especially young companies we'd see more dramatic shifts; a share in Facebook is now worth however much a share in Facebook is worth as a mature company (discounted by the risk-free interest rate). So a few would shoot up to 40x their current value, while many would drop low enough to be delisted.
In the slightly longer term an IPO becomes some kind of weird singularity - everyone knows which companies are going to be huge, as soon as they go public. The SEC would hopefully relax the rules (because their reporting rules are now basically obsolete) so we'd see companies being listed much sooner, or even funded based on whether or not they show up in the future data. Suddenly, every startup is a megahit, and there are many more of them, because it's now a safe way to make enormous amounts of money, so everyone wants to found one (or at least, everyone who has it in them to found one that works). The market abhors safe ways to make lots of money, so all the investment money available pours into this, and we hit the singularity in fairly short order.