My sincere apologies, with so many avenues of communication it's hard to keep track of them. Let me do my best to address your questions for you:
Q) Does WHMCS need to be installed already?
A) Yes, J!WHMCS Integrator requires both Joomla and WHMCS to be installed already. It doesn't necessarily have to be a live site (ie it could be under development somewhere) but it does need WHMCS installed.
Q) Do you need another WHMCS license key?
A) No, you can use the same WHMCS license key as provided by your reseller - that should work fine.
Q) Hosting packages need to be setup?
A) No, J!WHMCS Integrator only concerns itself with the user level and visual level integration and doesn't touch the products - we do have a pricing plugin that is included, but you can use that as you build out your site (the pricing plugin pulls the live price from WHMCS for a product into Joomla so you don't have to keep track of all your sales pages).
Q) Would like people to be able to jump to another domain service - can this be done?
A) I'm unsure I am understanding - I would need more details; presumably you are not wanting to utilize WHMCS' built in Domain Registration capabilities but would like them to be able to use another service for that purpose. If this is the case, you could do this, but the only issue would be on hosting package setup etc, you would need to force the package to not request a domain registration but to request an already existing domain and allow your customer to purchase / setup / manage the domain through the other service.
Q) Moving files for security necessary?
A) J!WHMCS doesn't interfere with WHMCS' recommended security protocols. I know they have a number of suggestions to better secure your installation, including moving folders and files out of the public space. The only one that may cause issues is the configuration.php file - if you move that file out of the public space, J!WHMCS may be unable to load the security token needed to authenticate API requests from Joomla and to create API requests for Joomla.
Q) Upgrading to Integrator3
A) Yes, this can be done for purchased licenses - if you have purchased your J!WHMCS license and want to upgrade to an I3 Lite or an I3 Regular product, the upgrade cost is the difference in price ($55 to go to an I3 Lite license, $129 to go to an I3 Regular license). The leased licenses I don't typically do that, however I would be willing to wave the $25 setup fee if you want this route.
Also to note, if you order the leased J!WHMCS or I3 product, you can upgrade to the full product within 30 days and we'll credit the $35 or $40 setup fee to the purchase price of the product. So if you ordered the leased J!WHMCS product for $35 and you liked it and want to go ahead and upgrade, just open a ticket within 30 days and I'll create the upgrade order for only $85 to get the purchased product.
Again, I am sorry for the delay in getting back to you. Please let me know if I can be of any further assistance.