Is Knockback damage added to the attack damage or is it seperate? This would allow Toughness, etc. to be applied to both times the character was damaged. Is this right or wrong. thanks.

You are correct. Attack damage is applied along with defensive powers then you get knockbacked. Apply the knockback damage and powers separately.

You are correct.

The order is:

Successful hit.

Damage.

Knockback.

Knockback damage (if any).

One thing to also remember, if the damage dealt knocks a figure off of his Charge (ie he doesn't have charge after taking damage) - that fig then can suffer Knockback.