I totally get your argument, that since the power action and the free action smoke cloud are separate you are allowed to ignore the restriction on DFA's to activate the power action twice but not the smoke cloud twice since that is after. However, based on the previous ruling by npberp that "If you activate a power you get to do what that power says", since it specifically says "They can then be given a free action to use smoke cloud", they can therefore use smoke cloud regardless of NDFA. If, however, we were talking about using multiattack w running shot and PB, I would agree that the second running shot would be legal but the second PB could be argued illegal (though I'm still not sure to how much of the action the "this may be used to activate duplicate effects" extends, whether it is just the initial action given or all the choices made within the action).

Yes it was ruled it happens immediately once they added that rule to the PG where all free actions granted by an action resolve immediately. Also, just like biomorphic shield on warblade and the free action barrier on that green lantern i'm blanking on the name of, the duration of "until next turn" is the duration of smoke cloud since after the free action resolves you no longer possess / can use smoke cloud and it would immediately drop.

I'd say 2 damage since each effect, while duplicate, would resolve separately.