Which Version of Fusion to use?

1)      The Apple website indicates that with Lion, Windows 7 is needed for Apple Bootcamp.  http://partnerweb.vmware.com/comp_guide2/search.php? lists 53 Microsoft systems for Fusion 4 ranging from  DOS 3-1 to Windows 7 (64 bit). I presume the limitation indicated by Apple applies to Bootcamp and not to Virtual Machines.

Correct. If your users are using a pure virtual machine (as opposed to one which makes use of a Boot Camp partition), there is no such limitation.

2)      Any recommendation on the PC Operating System?  With our PC feedback, I’d guess avoid Vista like the plague and don’t use Windows 7 (64 bit), still driver problems. I see Version 4 mentions  the restricted number of Virtual Machines supported by XP no longer applies.

Driver problems with a stock install aren't really a problem for virtual machines, since the virtual hardware is relatively constant. I personally think Win7 (either 32 or 64 bit) is the way to go due to being the most current (so probably best supported) Microsoft OS.

3)      Is there a Mac operating system list

Not that I know of, you have to dig through the release notes for each version of Fusion. I think the minimum host OS goes something like this:

4) Are there instructions for dummies on installing PC applications. We’ve notes (passed onto us by our Mac enthuiast) for installing CD’s  but understand installation of downloads is trickier.

You install them the same way you would on a physical PC. The only trick is if you download something to the Mac side and want to run it in a virtual machine, which is like downloading something to computer A and wanting to run it on computer B - you have to get it to the target before you can run it. There are a variety of ways to do this, including but not limited to Fusion's drag-and-drop, Fusion's HGFS file sharing, and Windows or Mac file sharing.