I can only answer based on my experience with 10.2 and 10.3 upgrade discs, but if Leopard is the same, the answer would be:
1) No
2) Yes
3) Yes
...previously, at least, it needed to see an install of either the current or previous OS. If such a thing existed, you could then do an archive and install or even an erase and install to get a totally fresh copy of the OS. It just needed to see that one exists on the drive before it wipes it.