ad 5:
oh, that's so interesting from an engineering perspective.
I discussed this with my wife who does have this "problem" in real life.
Basically it comes down to two rules:
1. The upper arm must have a "keep out" area, meaning that when it's over the body it has to have an angle of at least x degrees to the front depending on the breast size. It's basically the same rule that you can't move the upper arm into the main part of the body, only a couple to degrees extra so that at least about 2/3rds of the breast depth is kept free. As the upper arm always collides with the breasts when it's over the body the rule is really as simple as that.
2. You can't have the lower arm moving at a 90° angle to the upper arm towards the breasts as this will crush them in real life and has odd effects in your game. In real life the lower arm will arrive at a larger angle so that the breast can slip over it and only go to 90° when the upper arm has stopped moving, putting the breasts nicely above the lower arms. The first rule doesn't affect this because the upper arm isn't over the body then.
I also noticed that at least in version 35 the hands are clipping when dancing, only the arms have a proper collision implemented. But you already properly modeled the collision with the hands when the girl is groped by the guy, even handling the breast size perfectly.
But please don't forget about the original reason of #5 with the thrust transmission during sex :-)