Re: Lots of questions for 1 image.
Why in the world would someone give you a flattened PSD file and expect you to make changes to it? Apparently someone has already done the work and probably has the original PSD and could easily make changes. Sounds like there is some kind of dispute between the original designer and your client and I would never interject myself into a situation like that. If your client has the original photo(s) ask them to provide them and you will rebuild it. Put it in dollars and cents. If you charge by the hour it will probably take you longer to correct the flattened file than to reconstruct it from the original photo.
I'm working a project right now with lots of ads. If clients want to provide their own PDF, I give them my specs (Press quality PDF, 300 PPI CMYK Tiff, EPS or Illustrator file at print size). The local hospital wants a full page (vertical) ad based on a newspaper ad done in a landscape perspective. I've asked them to go back to the newspaper and ask them to recreate the ad to my specs since they have all the original elements that they can resize and reposition to suit the aspect ratio. Or, if the newspaper is willing to send me their original PSD/InDesign/or Illustrator layered file, I'll do it for them.