Q1: you can automatically pick up messages from MSMQ, you will need to look into the netmsmqbinding, there are some design considerations that you have to think about though, if you are used to the native MSMQ, you know that you have the ability to peek at the messages. But when you use WCF, you loose that ability to peek. WCF will intercept the messages in MSMQ and you are responsible for keeping your WCF service and the peeking app in synch.
You will also need to look into whether you need transactional or non-transactional queues and you will have to modify your binding based on that.
Q2: You will need to host the WCF service in windows service or in IIS7. if you host in IIS7 look into enabling MSMQ WAS listener
Here is a nice article:
http://blogs.msdn.com/tomholl/archive/2008/07/12/msmq-wcf-and-iis-getting-them-to-play-nice-part-1.aspx