Yes, you need to sanitize the bag before you use it. I just soak with the rest of my gear.
You can carb and serve with the hops in the keg. You can let them set in the keg until it is empty or until you have achieved the perfect aroma.
How much you use is up to you. Less than 1 ounce probably won't do much. I have had good results with 1 ounce in my pale ales and 2 ounces in my IPAs.
(Note: I have never keg hopped, but I am seriously thinking about giving it a try)
My name is Steve and I am a hopoholic.