sewplease Oh this is going to be so pretty! And yes, the size is determined by the length of the sides not the diameter of the hexie.
As for thread you can use any kind-especially one that closely matches your fabric. I've used a cream colored hand quilting cotton thread that I really like. It's very strong and when I go to secure my thread ends at the beginning and ending of each side it knots tightly. Synthetic threads (polyester, rayon etc) like to slip and slide and not knot as well for me. I've seen many hexies sewn with a whipstitch. That's how I started out, but I had a hard time making these "invisible" from the right side so switched to using a ladder stitch. Google "ladder stitch" and you will find many places that will show you how.
I've left the basting stitches in. I've seen some basting that shows on the front; I would think those need to be taken out. I'm a "path of least resistance" person so if they don't show, why leave them in? I figure they add more stability to the patch.
The beauty of EPP is the accuracy comes from the seam (sewing) line not the cutting line--so yes the 1/4" seam allowance is only a guideline. Once in a while on my little hexies the seam allowance is a little less than a quarter, but not a big deal to me as this is going to be used a doll quilt and not get the heavy duty wear a regular quilt would get.
I just found out I report for jury duty next week and my bag of hexies are going with while I wait!!!