1) No, the twerps are not observant- not even Brock when it comes to villains in disguise. However, I think we have to give them a pass on this one, because both Cynthia and her grandmother have been taken in too. Right now, they consider Cyrus a friend and benefactor. This can't end well.
2) Have to give them a pass on this one, too. It's been shown that a lot of people know about the sprites, so they didn't reveal anything other than the fact that they'd actually seen them. Although that could end badly, too, since Cyrus seems to think that there's a connection.
3) I wouldn't mind a slow breaking of this habit. Maybe have Brock rein it in a bit, just lightly flirting, and every now and then have a relapse.