While driving on the interstate late last year, my beloved diesel started screeching horribly and the oil lamp/buzzer contraption started wailing. So, I rapidly got if off of the road and ended up towing it home, where it slept for a few months until I had time to work on it. I have pulled the engine and trans, and have found that the IMS bearings are flaked out and toast. The PO had "some head work done", and I think probably the timing belt was too tight. Neither here nor there at this point. Been cleaning and disassembling for a while now, and noticed that instead of #1 being at TDC, #2 now was... so it called for the head to be pulled as well.
Noticed that just one of the rod lobes had some blueing:

So took off the head and started checking things out. First, noticed the bearings are toast:


So, new bearings are in order. They are all marked std, but have been replaced at some time since there is an engraving on the underside that is not shown here dating the bearing to 2006.
Piston tops all look like this:


All the rings are free and the cylinder walls still show a slight bit of cross-hatching, no deep scores in any of them. Also, it doesn't look like the pistons have ever impacted the valves, so I was worried about nothing there. As far as I can tell, none of the valves are bent either.
Next, the head:

And above piston 1:

See the crack? All 4 cylinders have it. Here's a closer view of #4:

Finally, a quick pic of the head gasket and deck:

Questions:
1. Do I need to replace the pistons? Is this "normal"? Personally, I don't think it can be a good thing, but I am not a mechanic... I think they are original pistons; they do have the Audi logo on the inside of the skirt.
2. Is the head shot? Those cracks all bother me, but I have read on the Vortex that this cracking is pretty common. Is it a deal-breaker? I have a feeling that the valves are fairly new; the PO said that there was head work done on the motor.
3. Is this the proper head gasket? Seems that some of the water jackets are plugged by the gasket, most noticeably to the right and left of the oil drain-down passage.
4. Is this what they call a "two groove" gasket? Is that what the two notches out of that tab on the gasket mean?
5. Been reading about ARP head bolts. Necessary? Or will the "normal" bolts from {insert your favorite supplier here} work as well on a "normal" build? Not going to go for 200 horse or anything, just a daily driver for me...
6. And what about head gaskets? Will the "normal" ones work as well also?
Thanks all! Hope someone has some good advice for a newbie!