1) Am I correct in assuming that anything you are wearing/carrying is absorbed into your new form and becomes non-functional until you return to your 'base' form? If so, could an artifact be lost forever if its bearer transforms into an animal and never returns to their base form (either due to death or choice)?
This has been debated since, well, forever. This has been asked several time and for some reason they have not provided an answer. There are two schools for this and both are valid. Either all items held or worn fall to the ground or everything held or worn will magically be absorbed as part of the new body. If the later is chosen (by the GM) then everything is lost in the void (or the druids mind or wherever it goes). If think that the idea that most groups chose is that all items are in the druids mind (or something). The spell would be less useful if everything would dropped to the ground.
2) When casting ANIMAL FORM again to return to your base form, is Power Level 1 sufficient, or do you have to hit the same PL as you did to take your current form, or even a PL based on your 'base' form strength?
You need to use enough required based on your 'base form' character (if your strength is 4 then you need to cast it at PL2).
3) When casting ANIMAL FORM while in ANIMAL FORM (whether to return to your base form or just shift to a different animal), can you use your current body parts as an ingredient? If so, would this 'lost part' carry over into other forms (would using your own tooth mean your base form would be missing a tooth when you return to it)?
Any injuries, wounds you get in animal form will appear in your 'base form'. Missing teeth or claws will be a critical injuries. I would suggest severed fingers or toes for claws or (of course) knocked out teeth for tooth.
4) Given the inherent risk of casting a Rank 3 spell without a Grimoire, is it standard practice for frequent users of this spell to create an extra Grimoire scroll of it and give it to a party member so they can use it to safe-cast the return to base form? Or possibly even carve it into a wall at any location they might routinely travel to in Eagle form?
All ideas are good ideas. The spell Bind Magic to create a magic trinket (that the druid doesn't carry while becoming an animal). The magic trinket should be a PL2 item, so that it can be used once but the magic doesn't goes away until it is used. It also needs to be something that an animal can use. Why not a small twig with the trigger, when broken by an animal bite.
5) If you happen to die while in an animal form, is this effectively a permanent death (given that your Empathy was reduced to 1 and RESURRECTION permanently reduces your Empathy by 1)?
Better not die in animal form (or in any form for that matter).
6) Could ANIMAL FORM be bound into an extremely nasty trap, transforming a trespasser into a spider with no ability to revert unless they are a druid with this spell or have access to a non-trap item with this spell bound into it? Alternately, could this spell be bound to an actual hunting trap to transform anything it catches into a deer (which I'm guessing would require an additional 'weapon' hunting check to actually kill)?
In several of the official adventures there are traps, potions that do exactly this, changing the poor adventurer into something else. If I remember correctly, the only save you have for this is that a spell-caster cast dispel when the change start.
7) Am I correct in my reading that you do not get the skill ranks of the animal? If so, is it really intended that a druid in the 'famous for its vision' Eagle form has a (possibly significantly) worse SCOUT die pool than they would in their base form given the reduction in Wits?
You become an eagle, but you don't get the experience of an eagle, but on the other hand, you become an eagle that has a bunch of other skills that a normal eagle doesn't have.
8) Do Animal Form attacks count as 'unarmed' for the BRAWLER talent? Or do the Blunt damage attacks count as 'blunt melee weapons' for the HAMMER FIGHTER talent.
All melee attacks without weapons, regardless if it is a fist, a foot, claw or bite falls under the Brawler talent.