Hi! I'm glad you're playing it, and I'm glad you're coming back to it periodically. That means a lot to me as a developer - your time is valuable, and to have made a game that people want to come back to is really meaningful for me.
1. Both of them will create better items the higher the skill is. At some point I've been meaning to also have higher skill give you a chance at more projectiles (for fletchery), maybe I'll sneak that into the next version.
2. It depends. That particular dungeon should always have 25 levels. And yeah, it's dungeon-y right now. Not a lot of actual variety in terms of the levels.
3. Not in the normal game mode, but there's a setting called (I think) narrative_mode that you can set in swyrm.ini. When your character dies, the game will revive it with full HP, so you can explore the game.
4. There's definitely a scroll that does that. Your deity may also decide to uncurse your equipment if you pray and don't have other pressing needs.