1) The airline has to re-route you "under comparable transport conditions" and "at the earliest opportunity" - these concepts being not clearly defined in the regulation. The interpretative guidelines from the EC only state that "if several flights are available with comparable timings, passengers having the right to re-routing should accept the offer of re-routing made by the carrier, including on those air carriers cooperating with the operating carrier".
In the case of a 7am BA flight vs 830am VY flight, I would assume you would have to accept the offer if the VY flight is proposed. In the case of a morning BA flight vs an afternoon VY flight, I would assume you could argue with the airline but it may be a hard fight if they do not want to give you that earlier flight.
If you decide to buy another ticket, you would not be reimbursed for that specific flight but keep in mind you would receive a compensation for IDB + you may claim a reimbursement of your VY flight.
2) Whatever the reason is, in case of an IDB you will receive a compensation. In your case (<1500km), 250€ or 125€ if VY offers you a re-routing with an arrival time not later than 2 hours after the original scheduled arrival time.
3) None. I would avoid signing anything even though I am not sure that a judge would considere it can prevent them from having to pay you any compensation... If they argue, you may escalate your case to the local civil aviation authority.
PS: don't forget that the duty of care also includes meals+hotel if needed.