1. How far should the inlet inside the aquarium be under the desired water level?
It should be very close to the desired water level, how close depends upon your return flow. If the return flow is high in relation to the overflows capacity, the water level may rise as much as 1/8" or so above the overflow, in lower return flow situations it may be much less.
2. Can the return tubing be standard 16/22mm if using 1 1/4" pipe on inlet?
Your return plumbing can be any size you wish... As long as the volume of water returned doesn't exceed the capacity of your overflow you will be fine.
3. Does this have good surface skimming abilities?
It's no coast to coast, but it is pulling from the surface so it will skim. You could increase the size of the inlet, or even remove the overflow pipe completely and replace it with an overflow box to ensure that your pulling a thinner layer of water to improve skimming potential.
Think of the overflow pipe as an optional component, it's job is simply to stop the water from getting to the siphon if the level drops below the desired point... Without it the water would flow until it reached the level of the outlet pipe. A box overflow, can serve the same purpose. You could even throw an elbow on top and run a piece of pipe with a slot in it to do a sort of psudo coast to coast overflow if you want better skimming.