To answer your questions in order:
1 - It kinda varies. It's possible to browse through this forum alone (let alone forums from other mfrs) and find mixed reports from those who have successfully and unsuccessfully managed to host their VST libraries on an external drive. It seems to vary wildly depending on what DAW you are using and the VSTs. To me, hosting on external drives is a whole heap of trouble I'd rather live without, and considering you're using the phrase 'my artists' I'm assuming you're at least semi-pro, so I'd recommend going for the solution likely to give the least pain, because time spent f'king about try to get things working is time not earning money. TLDR = put your hand in your pocket and just buy a big internal drive, it makes sense.
2 - Again, it varies. Old 32-bit VSTs are a complete no-no for definite, but 64-bit x86 plugins which are still waiting to be re-coded for Apple Mx chips will usually work 'ok-ish' via Rosetta 2. But again it's by far a more harmonious process if you have assurance that the VSTs you need to use the most are already native for Apple Mx chips.
3 - I'd go with 16GB if you can stretch to that. The SSD's on the new Mx Macbooks are lightning fast providing you avoid the 256GB M2 Air and M2 13" no-so-Pro (which have SSDs slower than their M1 predecessors), but you still want to be avoiding swap as much as you can, especially if you opt for the 256GB SSD models, so more memory is good.
