The former. It will preserve the existing install location (set by the old installer that did allow a custom location) and update it to the latest version.
No need. You can install it on top. There will be a couple of files leftover, but they are harmless and will be removed automatically in the future.
Custom install locations is on our list to add, but we want to do it properly. The old installer still placed some big files on C drive (in ProgramData, specifically), that we want to move as well.
At the moment, all of the Orbx airports and regions should be fine sticking together in one clump (i.e. the "FTX*" block). Then you can move that whole block of Orbx products below your other scenery items (such as your Aerosoft airports).
Is there a specific add-on that requires itself to be placed between the Orbx airports and regions in the scenery library?