Just because /etc/passwd can be read doesn't mean there is no sandboxing - it's just not too restrictive, probably to allow many programming languages to run (bash is one of languages after all - so process execution has to be allowed). Just having access to /etc/passwd doesn't mean the service is hacked. Check other tools like this like ideone, they allow you to read /etc/passwd as well.
Try running `ps aux` for instance and notice that you can only notice runner's processes. Try writing a file in your home, and notice that it doesn't persist between runs. Run a process in background, it doesn't stay running. Essentially every change to the runner (account on which scripts are running) is undone after provided script is done running.
Not really, with SELinux, which is what TIO uses. TIO can be deployed pretty much anywhere SEL is supported. Instructions here: https://github.com/TryItOnline/tiosetup