For some reason the models are broken for me, some of the adjustments (namely the butt sliders and Mal0's belly slider) just slide a couple polygons out without actually affecting the rest of the area
For now, you can only find it in level 0, and yes, it spawns on all difficulties. It usually spawns in the corners.
You have to click on it with the lube bottle, and a very quiet noise plays (fixed in the next update), which means it's filled up.
After that, you just have to bring it to the merchant stand and put it in the highlighted green zone.