Unfortunately a lot of the writings you will find here on Drupal.org are geared towards Linux (or its variants). I had to pore through those writings to come up with a technique to use on Windows that works for me. Hopefully these tips will help you too.
As of this writing, I have eight development (test) sites on my PC that reflect the live sites that I develop or do primary maintenance on. They are set up in a multisite configuration.
I do my module development in my sites/all/modules directory. This allows all the sites to be exposed to the module so I can have different environments in which to test it. This can be important because not all modules play well with each other and what works in one site may not in another.
Currently, I use Dreamweaver because I haven't had the time to learn a better IDE yet. [Please, someone step up and create a tutorial on Eclipse or something like it!] Dreamweaver is a horrible development tool for Drupal (more on it later).
You can. I do if I'm making a quick, small change. Many years ago I abandoned Notepad so I can't speak to it's current implementation; some people say it's better.
I use Wordpad for these quick changes. However, Wordpad has a nasty habit of moving the current line (with the cursor in it) to the top of the frame when you save it; this can be annoying. It also doesn't know PHP so it doesn't color the code like an IDE (or even Dreamweaver) does.
Another disadvantage is no line numbering. Unless you never make a mistake (be honest now) and never have to refer to your Apache error log, something that tells you the line number is important for locating your errors.
Drupal is constantly being improved. This means that, at any given time, there are at least 3 versions: a) the previous stable version (as of this writing, 4.7), b) the current stable version (5), and c) the next development version (6). It is probably going to be common practice that the version beyond that (7) will be at least in planning as well.
This means it would be a really good idea for you to do a little homework. There is a handbook section on Updating your modules. The Drupal philosophy is to not carry "baggage" forward; this means that occasionally (usually) The new changes will "break" your module. Study that plans and announcements to see if there are things you can easily avoid now.
For example, D6 will eliminate the "db_num_rows" function. I had this all over my previously developed modules. Once I became aware of this coming change, I could start coding around it. Thus I avoid one problem in upgrading.
Another good place to keep up on this stuff is the Drupal issues queue.
Plan, plan, plan.