1. or a spell component pouch. Yes I realize some spells have expensive spell components but those are few and far between and it is unlikely that such spells would be stolen in the first place. Being prepared for them on the off chance that one is stolen is the players decision and not something really worth doing.
2. The sandman just knows. It's all part of stealing the spell as stated in the ability.
(Su): A sandman can use performance to steal spells from his foes and add them to his list of spells known. Once the performance is started, the bard can steal a prepared spell or a spell known from another creature with a touch attack as a standard action. The target receives a Will save (DC 10 + 1/2 the bard's level + the bard's Cha bonus) to negate the effect. The sandman may choose a spell to steal, but if the target does not possess the spell, the bardic performance immediately ends. Otherwise the spell stolen is random, but it is always of the highest level that the bard can cast, if possible. The target loses the prepared spell or spell known and the sandman adds it to his list of spells known for as long as the performance continues, after which it reverts to the original recipient. While stolen, the bard can cast the spell using his available spell slots. This use does not consume the stolen spell. If the bard steals another spell while a spell is stolen, the previous spell immediately reverts to its original owner. This ability requires visual components. This performance replaces inspire courage.
As a side note, a bard can only cast up to 6th level spells, so resurrection is definitely off the cards.
You can assume any material component not specifically list with a cost is in the spell component pouch. Unholy water is a special case as it does actually have a cost associated with it.
If he steals a spell he does not have the costly material component for, he won't be able to cast the spell. That is a given. But as I said, few and far between. It is unlikely whether you would actually want to cast those spells even if you had the required costly components.
Thematically bardic performance is not necessarily singing or playing a musical instrument; it also includes dancing which can be done stealthily. (or at least more stealthily). Regardless, the sneakspell ability does not require stealth, so the point is moot.
Yes, it is usually against a casters best save (Will save). I can see this ability being more useful in denying the opponent, a sorcerer for example, the use of her lightening bolt spell that she is throwing at the party every round and as added bonus you can throw them back.