1) No that did not happen, DOK's fetishes for Alanis Morissette are not my fantasies for Lętitia Sadier. She's a great vocalist, but she isn't the most attractive front woman ever.
2) Emperor Tomato Ketchup is their only album that I have, and it is utterly amazing. Lush dream pop of the highest order. (See also: Moose's High Ball Me) Also, ETK is generally considered their best album.
3) They're planning on reissuing some albums (maybe the entire catalog?) so you might want to hold off on buying them, if downloading, then go ahead! Tim Gane and Lętitia Sadier are fantastic!
4) I haven't heard any Cocteau Twins but I really should, eh?