1) Yes. And stir Solution A (the gelatin solution in the water bath) continuously during the entire addition step of Solution B - which should take about 10 minutes to add.
2a) To set it, put the beaker of emulsion in a water bath at 50F or colder - water with ice in it will work. You can use tap water here. You can keep changing the bath as it warms up. You don't need to stir for this step, just let the soution sit in the bath. When the emulsion gets cold enough, it will solidify like jello. Make sure it sits long enough to set all the way through. You can also put it in a light-tight container and store it in the fridge overnight.
2b) To shred it, get a "ricer" (a device used for mashing potatoes). I find it's a little easier to rice the emulsion if it is not refrigerator cold - let it warm up on the darkroom counter top for 15 minutes or so and then rice it. I think the lightfarm instructions have you rice it into a large container and have the shredded emulsion loose in the container, and use a piece of plastic window screening to strain the shreds when you change the water.
I like to rice it into a nylon stocking (knee highs work great). Stretch the stocking over the mouth of a beaker or container filled with chilled or ice water so that the riced emulsion falls into the cold water. When you get all the emulsion into the stocking, remove it from the beaker, and then tie the end shut and then wash it. it will take a few more water washes if the emulsion is tied in a stocking as you need time to let the water diffuse into the emulsion.
3) You can use tap for this step, but then use distilled for the last. If you like, you can use distilled for all.