1. Will depend on your requirement such as frequency of SMS being sent and received, supported modes - text, PDU (you may need if you are programming the software yourself), and many such things.
2. You can send and receive SMS using GSM/GPRS modems. Your cell phone can also be used for the same.
3. Yes. There are bulk plans as well. You can check with different operators. Most of them provide SMS Gateway and their own interface to send and receive SMS. All you will need is a good modem.
4. Yes. Read below.
Introduction to SMS Messaging[
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This site will answer most of your queries. I suggest you to go through all the topics once.
Get back in case you face any issues.
Hope this helps!