> 1. When you write 'þ' does it extend below the line (if writing on
> lined paper)?

Yes! The miniscule version (þ) does but the capital one (Þ) doesn't. The
ball rests on the line when I write 'þ' on lined paper.

> 2. When you write 'æ' do you write an 'a' as it appears on the
> computer, or an 'a' such as in this:
> http://img358.imageshack.us/img358/5780/lettera0pb.jpg

Like in the image.

> 3. What does "þræða" mean? :)

It's a verb meaning "to thread".

Kveðja,
Haukur