1. ViEmu does not yet understand ^V as an "input escape" character, and ^M can't be keyed in directly, as it's the same as return.
The way to do what you want in ViEmu is to do :s/ /\r/g (the '\r' syntax for the line feed in the right-hand side of a :s command is taken from vim).
2. You are right in that the current UI is complex and confusing. To work properly, it should do some kind of "intelligent merge" in order to avoid duplicates and take into account possible changes by the user through the VS configuration interface. What I usually do is, first, "Restore" and "Forget" from the left-hand list of deactivated & saved commands, do whatever changes, and then use "Save and Remove".
Instead of chasing a difficult goal and improve this UI, I will be bringing in the new interception system I developed for ViEmu/Word+Outlook into ViEmu/VS and /SQL, which will not need to remove any keybindings, and it will be much simpler.
3. You are right, I have received several reports of this. I must have broken it in some of the latest releases. I am finishing a new build of ViEmu/Word+Outlook, hopefully ready in a couple of days, and then I'll come back to fix all the outstanding issues in ViEmu/VS towards an official 2.1 release. This issue is included among the priority ones and will be fixed in the next release, hopefully ready next week.
Thanks and best regards,