From what I gather you'll need to setup separate databases if you need to mix 3.3.5 and master, so the config files will need quite a bit of tweaking.
Yeah you don't need to; I've spot checked my DB and it contains all the update SQL's that were provided in the source directory. I think the updates folder is only really needed when you update the source and you don't need to recompile, then you will likely need to run the updates yourself.