1) You can form your LLC in any state you wish. While there are some differences between state laws on the subject, they are slight--there is very little advantage to one state over another. That said, forming it in your state is likely best, since that way, if some lawsuit or other legal matter comes up where your particular state's LLC law is relevant, it will be easiest for you to find an attorney conversant with it.
2) You need to form the LLC with the state (go to the state's department of state or department of revenue website) and get an EIN from IRS.
3) Both setting up the LLC and getting the EIN can be done online.
4) An LLC is the best choice: it offers you liability protection (protects you against most--but not all; there are always exceptions--debts owed by, obligations of, and lawsuits against your company), the same as a corporation, but involves somewhat less reporting and paperwork.
5) Yes, you will need a business bank account to help show that the LLC is "real" and not just an extension of you personally. The LLC must have an independent existence for you to get its protection.
6) When you set up the LLC, select "disregarded entity," "partnership" tax treatment, or "pass-through" treatment (terms may vary)--that way, there is no separate taxation of the LLC, but instead, profits (and losses, which provide a tax deduction) drop directly to your personal bottom line and are taxed with any other income you have.
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