I haven't used Outlook 2003 GPOs in some time, but if I recall correctly from when I did use them:
1. Yes, it affects both. You are basically changing the typical "userprofile path" that points to their local profile folders to another location. It'd be worded better to say "Default location for Outlook Data files".
2. Yes, if it doesn't already exist
3. No..existing PST files will stay where they are
Don't hold my feet to the fire on the above, but that's how I recall it.