#1
Should they be curled towards the pick or extended outwards parallel with the palm.
#2
The technically correct way is to curl your fingers toward your palm and keep them relaxed.

Keeping your hand relaxed is the most important thing, and the method above is the best way to do it. Extending your fingers puts more tension on your wrist.
Gear

Gibson '57 Les Paul Reissue
Marshall TSL 601
EHX: Big Muff, Metal Muff, Small Stone, POG, 2880
Ibanez TS808
Voodoo Labs Microvibe
Analogman Chorus
Morley Bad Horsie II
Keeley Compressor (C4)
Nova Delay
MXR 10-band EQ