Taxonomies for custom post types

For question one, reading the following from the codex makes me think you need to change hierarchical to 1:

depth (integer) (optional) The max depth. This is ignore unless
hierarchical is set to true. Default: 0/False

hierarchical (boolean) (optional) Display all categories (0/False) or
display categories (1/True) to a depth of ‘depth’. Default: 0/False