On the second point: Maybe you could strike a balance: rather than showing how many 'lives' the player has, maybe just make it part of the dialogue, so rather than saying INCORRECT each time make him get more and more angry the closer you are to losing (e.g. 1st mistake "that doesnt sound right to me, you better not be lying to me", 2nd mistake "Dont lie to me again or I'll get really upset!") so when theyre on their last life you could have him say something like "I'm giving you one more chance to tell me the truth! Any more lies and you're out of here!" or something like that. That way it sort of keeps the game in character, but still gives the player the info they need that theyre on their last warning?
On a similar note, maybe in the intro you could have him say something like "WHAT?! That's not the attitude I'm looking for! You better wake yourself up because you'll find out how angry I can get if your behaviour doesn't improve!"; something which progresses the story but lets you know this guy is a bit of a hothead haha :)
A pleasure!