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1.  Yes it needs to appear, but not several times.  It is best if it appears in a title tag near the top of the page keyword . 2.  Keyword tags only tell your competitors what keywords you are targetting.  They have no weight for search engines anymore.  Title tags and description tags help with click through rate(CTR).  When a user sees a compelling title with a good description in the search results, they click.  Titles have some weight on SEO. 3.  Internal linking will help, but make sure they make sense to the user and are not just there for the search engines.  It's pointless to have a website that only makes sense to a search engine and confuses the people who find it via the search engine.

Would you recommend the rel=canonical tag for other page types as well, like informational pages? For example, Website B has been given permission by the content-creating Website A to use A's original content on B's site. Should site B be required to include the rel=canonical tag on each URL where they are using copied content? The content still exists on Website A - is using rel=canonical the best way to ensure they continue to get credit for it?

As long as you replace the flash with substantive relevant content and link to the homepage from other internal pages or outside sources, there is no reason the page should not be re-ranked (based on the new content, overall authority of the site through other content and backlinking, etc.) It was not likely that this was a penalty, just a drop in any searchable ranking as a response to a lack of content on the page and therefore, there was nothing in which to rank the page for any particular keyword or authority by Google.