Here's (an attempt at) a polynomial-time algorithm for LMC on arbitrary binary DAGs $G$.
This answers Question #3. (Sorry for the messy write-up ahead of time. :))
To begin, throw out "forever" any vertex not reachable from $s$. We don't care about these, since they're not part of any $s$-$t$ path.
Next, define sub-DAGs $A$ and $B$, initially empty. Then, for all vertices $v \in G-\{s, t\}$,
Test whether there is a path from $v$ to $t$. If so, add $v$ to $A$. If not, add $v$ to $B$.
Let the edges of $A$ and $B$ be those induced by the vertices within each set (for now, ignore any edges from $s$ to $A$, from $A$ to $t$, and from $A$ to $B$; also note there are no edges from $B$ to $t$ by construction).
Then, compute the transitive closure of $A$. Namely, we are interested in finding some set of vertices $\{a^*\}$ that are the "leaves" of the sub-DAG $A$.
Fix any such $a^*$. Observe that there must be a directed edge from $a^*$ to $t$. This is because, by construction, (i) there is an $s$-$t$ path through $a^*$, (ii) there are no paths from $a^*$ through $B$, and (iii) since $A$ is itself a DAG and $a^*$ is a leaf of $A$, there is no path from $a^*$ through another vertex of $A$ to $t$.
Now, there must also be a directed edge from each vertex in $\{a^*\}$ to some vertex in $B$, or some of the $\{a^*\}$ have a single edge to $t$. In either case, we are allowed to delete any $a^*\rightarrow t$ edge.
If $|\{a^*\}|$ = 1, then either we must delete the edge from the unique $a^*\rightarrow t$, or there is a vertex earlier in the $s$-$t$ path containing $a^*$ that has two paths to $t$ -- one through $a^*$ and one directly. In case that the latter might hold, we record $a^*\rightarrow t$ and proceed "backwards greedily" (details on this below).
If $|\{a^*\}|$ > 1, then we must either delete all of the edges from $\{a^*\}\rightarrow t$, or else there are some number of edges $k < |\{a^*\}|$ earlier in the transitive closure of $A$ that disconnect all paths from $s$ through the $\{a^*\}$ to $t$.
This is where we use the fact that the graph $G$ is a binary DAG.
Consider the set of predecessors of $\{a^*\}$. Since each of these vertices has out-degree at most two, there are exactly three cases:
Case 1. A predecessor has an out-edge to some vertex in $\{a^*\}$ and an out-edge to some vertex in $B$.
In this case, it doesn't matter whether we delete the edge from the predecessor to the vertex in $\{a^*\}$ or the edge from the vertex in $\{a^*\}$ to $t$. Therefore, we can "skip past" this vertex (and check whether the backwards path merges with a path of another vertex in $\{a^*\}$).
Case 2. A predecessor has an out-edge to a vertex in $\{a^*\}$ and another predecessor of the $\{a^*\}$.
In this case, we must either delete both edges from the $\{a^*\}$ to $t$, or we can delete a single earlier edge in the path from $s$ to the predecessor that disconnects both paths.
Case 3. A predecessor has an out-edge to two vertices in $\{a^*\}$.
This is identical to case 2. It doesn't matter whether we delete one of this predecessor's edges and the corresponding other edges from $\{a^*\}$ to $t$, or both of the edges from the $\{a^*\}$ to $t$. We just want to know whether we can disconnect the path from $s$ through this predecessor to $t$ with a single edge earlier in the path from $s$ to the predecessor.
Altogether, as we scan backwards through predecessors in the transitive closure of $A$, we can greedily keep track of the "best so far" choices. That is, at every step, we have an obvious choice that involves deleting some number of edges, but we want to wait to see whether a better option is available. Once a better option is found, we can "forget" about the previous option. Hence, a greedy choice at each layer of predecessors suffices (so long as we wait until the end to commit to any choice).
Therefore, with some basic memoization, the time and space complexities of this process appear to be at most $O(|E|)$. This leaves out the fact that, while we can locally/greedily identify when we have found a "cheaper choice," it's a priori unclear which previously-recorded edges to remove. Therefore, we record the order in which we check edges as we go. Upon finding a better option, we repeat the search up to this point in order to find which previously-recorded edges to remove. The total time complexity of this step is $O(|E|^2)$ and space complexity $O(|E|)$.
Altogether, the time complexity is $O(|V|\cdot(|V|+|E|))$ for initialization, plus $O(|V|^3)$ for the transitive closure, plus $O(|E|^2)$ for the search. The total time is $O(|V|^2+|E||V|+|V|^3+|E|^2) = {\bf O(|V|^3+|E|^2)}$.
Upon completing the process, we obtain the minimum set of edges required to disconnect $s$ from $t$ while preserving at least one out-edge of every vertex in the graph (or we discover that a solution is impossible along the way, and abort).