All three are quite acceptable, because everyone knows what is being talked about when you use any of them, and that's all that is important. The only proper pronunciation is the one used by Linus Torvalds himself. The name Linux is a derivative of his name, and thus is pronounced like his name. This pronunciation has no basis in reality or linguistic derivatives. Usually a installer program is provided to aid in the installation process.
Extra software comes in a mix of utilities and applications.
Some distributions are more suited for the home user. Some other distributions caters for the server user. A good Linux distribution is Red Hat which is also the most popular. So from version 1.2.2 to 1.2.3, there were only bug fixes, and no new features. Versions n.x.y, where x is an odd number, are beta-quality releases for developers only, and may be unstable and may crash, and are having new features added to them all the time.