1. Yes, latest stealth patches have proven themselves to be pretty relaible when playing online. I myself have been playing on LIVE for a few months and everything is fine.
2. No, you cannot play on Xbox LIVE if you refuse to go through an update which might be available at the time....again, so far its safe to update.
3. You can't escape a ban....period.
4. If you're buying the Xbox 360 in Pakistan then it will be modded already. No need to worry about that. However, just to make sure, you should ask the shop keeper if the Xbox 360 you are buying has been "already flashed with iXtreme 1.6 firmware"
iXtreme 1.6 is the latest firmware.
5. I have heard of a method to un-ban an XBox 360 console, but due to the method's complex nature and no guarentee only few have tried it.