1. Probably not
2. Most probably, Because once the PC has booted from the CD, it doesn't have to rely on the BIOS.
3. I doubt it. These distributions are still pretty big. There are smaller, such as DSL
at IIRC, 54 MB, and BeatrIX
at 188 MB.
4. All of it, and none of it! It really depends what you want to do with it.
Question, Do you really mean 2 MB? For this size, you will really need to look at the distributions that do not run a GUI. That is, no X, no desktop and so on.
What is that you want to do, that it requires you boot from either a compact flash or USB device?