Well, since you're the OP, it's really up to your final decision instead of mine lols.
But if it were up to me..
1. Depends, if you want an alternate reality SAO. I don't think people would be able to go through the same thing as they did with the original SAO. 
2. Magic could create more of a variation of classes, and they go well with skills. But it defeats the whole purpose of "Sword Art Online". You can change the name if you want.
3. I think levels would be a good idea in this sort of thing. They can make it easy to differentiate new players and the more experienced. It'll be easier for the ones with a good grasp on the game to level, so yeah.