(1.) The sparge temp should bring your mash to 170°F, so if you are using my bag method, you want the water to be above that, probably closer to 180°F.
So, if you did mash out, you would add more water to bring your temp to 168°F (beersmith says 170°F, I like 168, whatever), rest for 10 minutes and THEN you would do your sparge.
Again, not necessary.
(3.) 2 lbs of crystal malts seems like a lot.
General conversion is 0.6 lbs DME = 0.75 lbs LME = 1.00 lbs grain (depending on efficiency, of course)
3 lbs light DME = 5 lbs of 2-row (light dme is just pale malt)
3 lbs amber extract...this is a little more tricky...this is a mixture of different malts and it could be entirely different from brand to brand. I would suggest some munich, 2-row and crystal malt. Perhaps 1.5 lbs of 2-row, 3 lbs of munich and 0.5 lbs of crystal malt. This will give you the color and maltiness you need for an octoberfest.
1 lbs caramunich = 1 lbs caramunich (i'm assuming this is a malt and not an extract.)
However, since you are mashing, you will get some sugars and better extraction from the grains. As I said before, 2 lbs of crystal malts seems like a lot, so I would cut down on the caramunich.
This is in no way my area of expertise, as I have always built my own recipes and rarely use any extract except light or wheat, but I would suggest the following for a partial mash:
3.0 lbs - Light DME
1.5 lbs - 2-row
3.0 lbs - Munich Malt
0.5 lbs - Crystal 60L
0.5 lbs - Caramunich
(5.) If you really want to maintain your temp, I would just wrap your mash tun in some blankets to insulate. It certainly helps. Last time I did this, I mashed for well over 2 hours without a single degree in temp loss.
Hope that helps. Let me know if you have any questions.