1) This is really not supported. The cell has to be fully visible in order to edit it. The reason is that you cannot clip a EditControl except at its parent window borders. If you have a edit control in the middle of a grid, then you cannot clip it at the edge of its grid cell.
You can do some things to be able to scroll the text to see it. Here is a sample that uses covered cells to allow this.
forum12423_1005.zip
You can also try deriving a cell control that holds a TextBox with a horizontal scrollbar. This solution may also allow you to edit it in a custom TextBox that allows horizontal scrolling using a scrollbar. (Haven''t tried this, so I do not know what problems you may encounter.)
2) Go ahead and set the colwidth for the column to be the desired width you want it to be (preferably something less than the clientwidth of the grid so you can edit it). Also, make sure the style for the column has WrapText = true set. The if you call grid.Model.RowHeights.ResizeToFit passing it the column range, it should resize the row heights to make everything visible.