[1. What are the upsides and downsides of setting upper and lower price boundaries for items through the usage of NPC buy and sell prices?]

Disclaimer: This is just "quick and dirty", and I have no idea how this project differs or intends to differ from EL

1. What are the upsides and downsides of setting upper and lower price boundaries for items through the usage of NPC buy and sell prices?

The function of this is obviously to limit the price range of an item, setting boundaries for price speculation; could also be seen as a way to implement a "minimum wage" and to stop (single or groups of) players from monopolizing the market for a particular item. This can also function as a way to encourage or discourage productions of certain items. See also 3 and 6.

The up- and downsides depend on how you view the possible functions or rather the ones that are actually employed.

2. Would there be ill effects if NPC buy prices make producers break even?

Assuming "break even" means "buy ingredients and food and still break even", then yes, as  too much money could be entering the game going to people who harvested their own ingredients etc. Of course this could be balanced by increasing the amounts of ingredients (i.e. the time it takes to harvest them and thus the total time required to make a particular item from scratch (possibly -food)). The "old" TS Pots using Henbanes are a good example here, other potions or essences also make a nice profit if you harvest your own ingredients, which overall keeps the market supplied with them (as in "I can either sell them to players or to NPC, they are not going to just sit in my storage forever, thus I am willing to make them in the first place).

3. What are the upsides and downsides of NPC's buying raw harvestables? Should NPC's only buy 'mixed' products?

Apart from what was mentioned on 1 above, this offers a way to calculate or set "minimum/maximum prices" for mixed items (which probably would be rather "ridiculously" low/high). Can also be used to encourage or discourage certain player types (afk harvesters/gold farmers) and player to player interaction. Depends a lot on the harvestable as well.

4. Finite resources (depletable harvesting locations)

One big problem in tuning a system like that is to make it fair for the whole player base and prevent a group of players to monopolize a particular resource (unless the other players could employ counter measures, e.g. hydro ore). Would also need to be adjusted to the number of "active" players or else you'll be making that resource artificially rare or not limiting it at all, really.
Alternative to the "spawn" system would be a "regenerative" approach, say a resource supports n harvesters, then harvesting will slow and possibly come to a stop if there are more than n harvesters harvesting it for a certain time, if there are less, the resource would (slowly, depending on the difference to n) regenerate and harvest speed would go up again. I think something like this was posted on the EL forums at some point, probably by trollson
Anyways, let's say a harvestable has a maximum stock of ms, a current stock of cs, a growth rate of gr (amount of regenerated harvestable per time unit), a harvest time of ht (time units to harvest one harvestable) and n players harvesting it (players with an excavator cloak would count as 2 players in this), then you could calculate the current harvesting time cht and the current stock after that round (assuming all players at this harvestable are dealt their parts at the same time) by
cht = ht if cs >= n and cht = n/gr + cs/gr if cs < n (this ensures enough of the harvestable is regenerated by the time the players get their share).
After the distribution to the players, the new cs ncs would be
ncs = min(cs - n + gr*cht; ms) if cs >= n and ncs = min(ms; "amount of unsuccessful harvest attempts") if cs < n
setting cs = ncs, you'd be ready for the next round.

5. Finite NPC buying power

One option would be to only buy in "reasonable quantities per day" from anybody and have that NPC go in debt for the day to ensure he can buy from everybody. Depending on the "background economy" he could then either adjust his prices the next day (or not) or not buy anything at all (if background economy's demand isn't sufficient to get him out of debt).

6. (Dynamically) changing NPC buy/sell prices

I think this is an awesome idea, which I've always supported, however, it would probably be fairly complex to implement, especially the interaction with the NPC based economy and the "background economy"... imagine item prices depending on how many ingredients were sold at what price to NPC, how many the "background economy" would provide at what prices and how many were bought from players, NPCs and the "background economy" as well. A simpler version would assume the "background economy"'s prices and demand to be stable (basically providing upper and lower price boundaries).
Of course prices could also depend on what could be potentially sold to NPCs or bought from them. This would be basically NPCs speculating on what of the resources might be on demand or for sale today, tomorrow, etc. I'm sure there are models that deal with this kind of behavior.

Ok, enough rambling, time for dinner!