1) What is the best programming language for cross platform of WP8/W8/Xbox?
Also, consider the availability of engines & libraries that may take some work off your shoulders (graphics / game engines, physics engines, math libraries, etc). Should you decide to go with C# and then later discover that the perfect game engine is available only in C++, it might be worth your while to re-evaluate.
Indie gaming on Xbox is going the way of the dodo bird, so you might want to re-evaluate that idea.
2) What are the best digital art programs to use? I currently have PS6 and Illustrator7(I know old school hunh?)
Again, whatever gets the job done. PS6 and Illustrator 7 are both excellent packages. If you are proficient with them and they work for your project, use them.
The content pipelines for modern games are usually long and complicated (3D assets and tools). As a single person you will want to restrict yourself to as few tools as possible and use the simplest pipeline you can possibly setup.
3) I know nothing about music, how does one go about composing music for a game? Same with sound effects?
If you know nothing about music, you probably won't be able to compose music for a game. Outsource it (to friends, to musical talent you discovered on youtube, or to professionals) or license it. Often times, sound effects are more challenging than music.
4) Is the 16bit gfx trend catching on to newer generations of gamers, or is it just a novelty? Better to invest in a 3d engine?
Games don't necessarily need to be 3D. Take a look at Skulls of the Shogun. It is a very popular XBLA title on WP which is entirely in 2D.
5) What engine do you developers for the above platforms use?
6) What engine is the best for the above platforms and game styles?
For mobile 3D games, the Unity engine is very popular. It is even available in a stripped down free version. However, it isn't optimal for 2D games, for which many people prefer Marmalade. Both are in Beta stages for WP. I'm not sure about W8/W8RT support.
7) Is developing apps/games like art? Where you finish a piece and you just resent it because its not as perfect as you want and just scrap it, or because it can be modified easily you just work with it until you get it right?
A game is never truly finished. At some point you must mount your managers hat and say it is time to release. Many do see game development as an art form. It certainly can be an extremely creative form of self expression.
I would recommend the documentary Indie Game to see how others feel about this.
8) Is it feasible to complete such a feat as a single person in his own free time?
It is possible, but it requires a LOT of passion, time and energy. Obviously, your game design must be adapted to the amount of work you can actually do on your own.
9) For those of you that have made free apps, what is the overhead cost and how did you recoup that loss?(Software not time)
10) Any input you have to share or advice to better prep me for jumping into the market?
I'll let others answer those.