After a few attempts the OS would rate-limit guesses to prevent exactly that. On some iOS versions it is possible to override this mechanism by cutting power at the right moment[1] but this exploit has been patched for a while and I doubt this device is vulnerable.
(3) it will ensure that when the FBI submits passcodes to the SUBJECT DEVICE, software running on the device will not purposefully introduce any additional delay between passcode attempts beyond what is incurred by Apple hardware.
The encryption key is calculated from your passcode + the AES key etched into the chip inside the phone. There's no way to read that key directly, unless you do some crazy chip imaging where you read the actual electron state of the memory - could be done, but the chance of corrupting that memory is very high, and if they read even one bit wrong then the entire key is useless.
So there are two ways to go about this - they can either brute force AES, which, quite simply, can't be done(and I don't mean can't be done with current computers, the number of possible combinations is larger than the atoms in the universe or something stupid like that), unless NSA has a way to crack AES faster(but if they do, they won't make that knowledge public). Or try every passcode combination going through the Apple's full algorithm, which takes about ~5 seconds to generate a key. So it's doable, but it would take some time.
Maybe? Do we even know what type of passcode they used? If they turned off simple passcode then they could have entered anything they wanted at varying lengths.
