1. Yes.
2. The passport agency will be in possession of the old passport.
3. All that's needed is proof of US citizenship, for which an expired passport will suffice. The issue was with the airlines letting one board a flight to the US with an expired travel document. For a holder of another passport, that doesn't really matter. However, due to Covid, the US currently allows its citizens to return using expired passports.
Please take a look at the following thread in the Practical Travel Safety and Security Issues forum: