What retsifp and AnotherElk said. Also, there is an app called FlashFire which makes updating modified devices even easier. I wrote a how-to about updating with FlashFire when using Magisk, but it should work pretty much the same way when using “standard” (non-systemless) Xposed.
You don’t need this app (as you noticed). The installation prompts can be disabled in the TWRP settings.
FPOS 17.11.2 is currently in beta testing, so you should have another opportunity to test your update procedure in a few days! 
Not going to happen. The vast majority of “western” Android users (yes, even Fairphone users) wants the Play Store (and maybe other Google services). While the Open OS and LineageOS communities are very active here on the forum, most FP2 owners use the phone just like it is.