Yes. Note however that an allied contingent of Bretonnians taken as part of any other army cannot pray. In order for Bretonnians to pray, the army they are part of must have the Blessings of the Lady rule, which only Kingdom of Bretonnia armies have.

No. Once a challenge has been issued and accepted neither combatant can retire until the challenge is resolved. Chivalry demands it.

Yes. Challenges are issued broadly; they are not issued to specific models. If several models could accept a challenge issued by the bearer of the Gauntlet of the Duel, one must accept the challenge, but their controlling player decides which.

The number of models hit is based on the number of ranks overall. For example, a Lance of six knights (arranged in ranks of one, two and three models) would suffer three hits. When a Lance is shot in its flank by a bolt thrower, the number of hits is based on the widest file. To continue the example above, three models would be hit based on the depth of the unit.

The Lance formation offers a bit more flexibility than other formations. For example, it is perfectly acceptable to place a character such as a Duke or a Baron at the front of the Lance should you wish. In the case of a Handmaiden of the Lady, the Shield of the Lady special rule allows such models to be placed at the rear of such units. Alternatively, they can be placed within the unit. In this case, the extra base size will make very little difference to the shape of the unit.

The full fighting rank. When a Lance charges, it pierces deep into the enemy formation, causing the enemy lines to close around it. It's very hard to show this on the table though, hence the abstraction.

Note that this can create an area of 'dead ground' between a Lance and a unit it is engaged in combat with. If any enemy units are caught within this, refer to the rules covering 'accidental contact' on page 131 of the Warhammer: the Old World rulebook.

No. As both units are charging, the clause that a Lance is blunted if it is charged and does not counter charge is negated.