XML FAQ: some questions

A couple of unanswered questions that I'd like to pre-empt:

BTW is there a more recent spec that 961114? I trawled the logs
but I couldn't see a reference.

1. What *may*, and what *must* precede the root element in a 
   well-formed XML document? The spec isn't very clear
   on which PIs are compulsory and which are optional.

2. How may entities be used in XML? ie whether general 
   entities can be included and to what depth.

3. The restriction in WF documents on what elements may occur
   within what others is not clear (3.2): 

      As a consequence of this, for each non-root element C, 
      there is one other element P such that C is in the content of P, 
      but is not in the content of any other element 
      that is in the content of P. 
      Then P is referred to as the parent of C, and C as the child of P. 

   Here's a non-root element C which we call PARA in some DTD or other.
   There is _an_other element (not _one_ other) P which we call SECT.
   PARA is in the content of SECT. So far so good.
   But SECT has in its content also an element called NOTE.
   NOTE has PARA in its content model.
   In other words:

             +----- stuff   +--- HEAD
             |              |
             +----- stuff   +--- PARA 
    docroot -|              |            +--- HEAD
             +----- SECT ---+--- NOTE ---+
             |              |            +--- PARA
             |              +--- stuff

    Is this permitted? 3.2 seems to say not: C can only be in the content
    of P and may not reoccur anywhere on the same branch of the tree. This
    is going to be an impossible restriction. Or have I misread it?