#1
I tend to mute the strings Im not using with my thumb

my question is are you to mute strings so you dont get feedback which I imagine isn't a big problem without distortion or just not hit the strings your not playing
#2
mostly just so you don't hear the strings you shouldn't be playing.
My Gear:
Fender Stratocaster Deluxe HSS
Hagstrom HIIN
Crate Palomino V32H w/ matching cab.
Roland Cube 60
Roland Micro Cube
BOSS ME-20
Digitech Bad Monkey
Art and Lutherie acoustic
#3
The most common reason for muting or avoiding a string during a chord would be because it does not belong in the chord. If the 'avoid note' is say on the 3rd or 4th string (something like 02x444) then you have no choice but to mute. If the avoid note is on the low E string (x32010) then you can either mute it or avoid it. Up to you.