1) Can you turn off the screen only while the Mac runs or the speakers are being used?
Yes. By setting one or more of the corners to turn the screen off, or by setting the monitor sleep option timer appropriately, the screen can go off after a pre-set time. (The full-screen "Visualizer" feature that can optionally run while iTunes music is playing a song is pretty cool so maybe you want to leave the monitor on.)

2) Is there a little knob or something to physically lower or raise the speakers volume?
On the iMac keyboard, there are two buttons near the top near the right... volume up and down.

3) Quality of the speakers is a bit subjective. For any speakers this size, you will not get chest thumping bass. I think their quality is comparable to - or maybe a little better than - the speakers in my HP/Compaq n6220 laptop. External speakers - with a subwoofer - would be an improvement in both cases. My son has a set of Klipsch or Altec-Lansing (I forget which) that were $50-$60 a couple of years ago and they are fine for his needs... which includes playing movies through his Mac to a projector to display on the wall and the fill a small living room with more than enough audio to have an acceptable experience for his college buddies... and still have volume "headroom" to get louder if needed...

4) I have not heard/read/experienced XP running any better/faster on a Mac... so I will not comment.

Relative to items 1-3, a visit to an authorized Apple Dealer (including an Apple store, if there is one nearby) would likely help... Item 4 would take a while to prove out... my opinion.