Yes, I'm able to listen to music and receive incoming phone calls and text messages while using the Polar H7. In fact, I use Polar Beat and RunKeeper at the same time during my runs for back-up purposes.
Yes, all of the above. I usually use the pause feature because I stop running/jogging at that point. After finished with my note or call I resume. However, it's not necessary to pause but I find it helpful.