1. Will the application be stored (exe, etc) with every user? or will you make the application available to all users, but the personal storage, or settings will be stored in the obfuscated directory?
XBAPs are cached on a per user basis.
2. Why choose 512KB? Will this be configurable?
512KB is the same size as cookie. There is not a good way for app developers to configure this today. However, depending on why you're trying to write to IsolatedStorage, a custom caching policy for HTTP requests may make sense. See my caching blog post.
3. Along the same lines, will there eventually be a sandboxed, domain based store? like myapp.com, could have multiple XBAPs and each it's own settings storage (the 512KB), but would also have a user defined sized storage for the domain? I think that would be really cool, and useful, I think this would further allow the online applications to be enhanced.
I'm not sure what the plans are here, but I've based the feedback along to the IsolatedStorage owners. Thanks!