PC Can be used as Terminal using TelNet.

(1) & (2)
Technically no issue. Oracle licensing will require you to have a client component on the local PC.

(3)
Depends on the capabilities of you "dumb" terminal. (Which isa the officail jargon since it has no memory except for terminal settings and keyboard buffer).
Eg. vt100 key mapping requires changing the TELNEt defaults and doesn't have the same effect as running in a pure character mod.

End

1&2, you can use a telnet session from a windows PC as a terminal although this depents on the apps you need to run and the emulation needed
3, telnet can provide terminal emulation unles you need to use the function keys in the apps you are trying to run.

1,2&3. I've used Telnet a lot and for basic stuff its fine but if I really need to get into a Unix system a lot, I have always either downloaded a freeware telnet replacement like this:

http://www.simtel.com/product.php?id=13467&SiteID=simtel.net

Or used Hummingbird's Exceed product:

http://www.hummingbird.com/products/nc/exceed/index.html

Depending on how your Oracle licensing is setup you may need a Oracle User license for any PC that has access to the database. Since you'll be accessing the database via a telnet session you won't need to install the Oracle client software. But unless you have a per server license you'll need that Oracle user license. (Unless Oracle has restructured their licensing policy in the last year)

Yes you can use the windows PC as Terminal having All dumb terminal

You can use A software named QVTNET from the net an Easy to use and configurable software.

You can also try Toad.

Information available at http://www.toadsoft.com/

This tool has been used by many oracle DBA and developers I have worked with