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Firstly, on Sunday and Monday
1. Nijo Castle shouldnt take the whole afternoon and I would rather visit Osaka or Himeji Castle.
2. I would spend Sunday night in Osaka, as the Namba area comes alive in the evening and onward. Namba is known for local food.
On vehicle. Do not get one. Driving in the city is a waste of time, especially finding overpriced parking. Only worthwhile if traveling long distances (you are not) or if you are going places with non-optimal public transport (again you are not). A pass like the Haruka & Icoca would work well for you.
For Qn 1. Answer is no. I would rather take the train to Kyoto, and visit Nara as a day trip from Kyoto. Saves the trouble of lugging luggage. Plus Nara has a direct train from Kyoto through charming countryside and sub-urban communities.
For Qn 2. No car! Arashiyama is an hour or less by train from nearly any other place in Kyoto! Where pay for parking and a car when it only costs about 200 yen per head!
For Qn 3. Haruka & Icoca makes sense but if you do not want the hassle of topping up monies into the Icoca card for 8 persons, getting a Kansai one day pass for KIX to Nara to Kyoto and then another such for Osaka to KIX. As for Kyoto to Osaka and all else, just pay the normal fare.
For Qn 4. IMO Kyoto beats Nara that beats Osaka. Osaka is better in the night than in the day, and Kyoto/Nara has not enough night activities to last more than two nights. Hope you are getting the hint here. As for Nara, it is a fun place to be if you like (raging) deer and large wooden temples. The architecture here is more subtle compared to Kyoto. I prefer Kyoto, but to each his own.
As long as it isn't the time for kids to go to school and adults to work and when they return home, transport is fine. Still I prefer taking the train though, more of a personal preference compared to the actual time taken to arrive. In short, the busy peak periods are the same with every other major city. Usually people on holiday would either be early risers and miss this period, or are taking things easy and would also miss this period. No matter, it won't be like the jams in the states.
Intercity travel is less crowded.
I have only once booked a place to eat (it was a pretty pricey place). I never had a group larger than 4. If you enter a restaurant before 6:30pm or after 8:30pm, sitting isnt a problem. As said above, tourists usually tend to start their day really early to do as much as possible or late to just relax; either way if you push your meal time accordingly (forward or backwards) you wouldn't be fighting the locals for seats. In the worse case scenario, go to a mid-range or high-end restaurant (e.g. those in Kyoto city station, other department stores, Gion, or Potoncho and surely Arashiyama).
For Qn 7. Not getting you. If you don't want to see them monkeys, then don't. I've been to Arashiyama at least thrice and have never seen them monkeys either. See enough in my everyday life already.
As mentioned Osaka and Himeji castles are more interesting castles. If you really want to do so though, Nijo castle shouldn't take more than two hours to stroll through. More than enough time.
Also note that Kyoto city is really small and the public transport is really good. I was once trapped in a jam going from one of the outlying attractions to the city central and it took about an hour + hour on a bus. I see no problem with not getting a car or traffic.
Lastly, on food. Ippudo and Ichiran Ramen would be good. For one near Gion where you would be at, there is tenkaippin ramen near Yasaka Shrine.
Kyoto is known for Kaiseki Ryori, Shojin Ryori, and Yudo Tofu. Ask Tourist information for where you can get the best and some not so expensive variants. The hotel above Kyoto station probably serves the best Kaiseki, Tenryuji does Shojin as other places in Arashiyama, and Yudo Tofu can be found from anywhere from Ryoan-ji temple to Shojin Dori to Arashiyama station.
Osaka is all about street food namely Okonomiyaki, Takoyaki, Omu Rice, beer, more Yakis.
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