As far as i know, you can use Traps on it and disarm it... if you have a good traps skill.If not, KA-BOOM.
If you are spotted with a live bomb on you, guards will shout "Terrorist!" or something and shoot you. Then ensues a little game of hot potato when the looters come. However, it takes a few seconds to set a dynamite then plant it, so you have a few seconds to drop it before guards will notice, I imagine.
Yes, but as I know, KA-BOOM will be in 1 hex near you, so you won't die instantly, but you'll get normal explosion damage, so if you have enough HP and an armor you'll be alive.