1. it does level out to your height. sometimes you reach the max that it will go, so you need to use the raise ground function of the hoe. you'll need a work bench and stone to do this.
2. the best method for base defending is a trench. ground enemies can't jump or get up steep inclines. just leave room for future expansion. work benches stop spawns inside your base.
3. I have indoor smelters. they just need lots of clearance above them.
4. iv'e got almost 800hrs in. good luck getting sleep.