Note that since Xanadu links and transclusions are external, you can select which linkbases to show. So you can filter them, which is important because otherwise you will surely end up with an unlimited number of links on every single character. :)
If the system is working correctly, you should always be able to follow transcluded quotations back to their original primary source - that is one of the most fundamental design principles. Conversely, the rightsholder of a document should be able to see where their work is being quoted.
Note that prices could always be zero - the reason to include micropayments was to try and get access to the vast majority of existing culture that is currently only available for a fee. Ted wanted to bring in existing rightsholders rather than fight them. Unfortunately as it turned out that was never going to work. Just look at how hard the film industry fought home video, among many other examples of established industries fighting disruptors!
Ted once called me a libertarian, and I immediately set him straight. Not even close, dude.
The design always included replication of the content. When information is originally published, you can request that "n" copies are sent to other back-end hosts that are advertising they have available storage. I believe we intended n to be at least 3. In addition, when someone requests content that is not already available locally and especially when they transclude the content, the back-end they are using is encouraged to make a local copy. So that answers "what if the linked host dies".
All content is already copyrighted by the author(s), and in order to publish it on the Xanadu network they have to agree to publish it under transcopyright which grants prior permission to transclude it. That does not preclude also offering the same content elsewhere under different license terms, but revoking the original license agreement would require the content be removed from the Xanadu network. IANAL but I suspect people might have some rights to rely on the original license unless properly notified that the rightsholder had revoked it.
All Xanadu content is append-only versioned, so if someone gets hacked and content is changed, nobody is obligated to transclude from the altered version. They can continue to transclude earlier versions.
In all fairness, there's a reason why Ted had a grudge against programmers, and he spelled it out in Computer Lib/Dream Machines. When he grew up, programmers were still generally the High Priests of the Machine, dressed in their business suits and working for the Man.
Also, Xanadu was always intended to be a federated network of individually owned backend servers, not a centralised network. So neither the Google nor the Elsevier model. The idea behind including micropayments was to attempt to encourage existing rightsholders to participate in the pre-granted permission transcoopyright ecosystem so that people can easily make remixes using the majority of our culture that is currently locked up, not just the portion of it available under permissive licences.