1) Theoretically, does MM4 sound any better than MM3? I am willing to use wasapi, etc
I cannot say that it sounds better and when I tried WASAPI, it crashed. I can say that using the default output plugin resulted hearing skipping on one of my mp3s. I relistened to the mp3 in VLC and, later, mediamonkey3, and the sound came out clean without any skipping. Mind you, I'm using mediamonkey on a core2duo lappy.
3) Is MM$ much more resource intensive than MM3 (ie is it gonna be slower)
Database queries via searches or autoplaylists was neither faster nor slower than mm3.
4) If I back up my library like a good boy, will I be able to go back to MM3 with only hassle of reinstalling..? If I reinstall, will I have to do the Lyricator, Lyrics viewer again also
I went back to MM3 in the manner you stated by simply reinstalling and moving over my scripts and skins back to their original locations. Since mediamonkey 4 uses completely differently directories for its settings than mediamonkey 3, a simple reinstall of mediamonkey 3 sufficed. Still, it is a good idea to backup your database when doing anything major. I didn't because I tried MM4 for a second time and decided to go back to MM4
6) Should I upgrade: I am mainly interested in better quality sound unless some new AUDIO features are just killer useful
That's up to you. Bit perfect playback may be important for you, so it might be worth the leap considering how you can go back to MM3 pretty easily. As for myself, small design choices, lack of skins and the removal/regression of some options in MM4 caused me to revert back to MM3.