1. Should I have one massive keyword list and lots of ad variations to start and then group the keywords and ads to be more relevant?
Massive Keyword List: Yes, as massive as possible to discover "funky" keywords that others don't bid for. Fine tune this list over the period of 1 week to a month.
Group the Keywords: Yes, group them if possible, know however that sometimes, I just dump keywords together and group later.
Ad Variations: Not necessary. You probably read in books of how you need to have many ad variations to split test. Worrying about 1 exclamation mark or 1 question mark in your ad will cause you to end up getting into alot of nitty gritties before even making money. Ad variation is one of the last things you should worry about.
Sherman's Adwords Tip: Get the impressions 1st!
2. With bids that low I am assured to not be on the front page should I even worry about that?
Don't worry about it. 1st page means more money to lose, especially in Adwords. I've seen sites that go bust after 1 week of being on the front page. They probably lost about $300, I've been down that route, and i stil do sometimes. The safer route is to spend time and start with massive keywords to find those obscure nuggets of joy.
3. Finally placing a $100 daily spend scare tha hell out of me as that represents half of my budget to test. How much can i reasonably expect to spend?
Place a $100 daily spend is ok. Bid below $0.15 and you'll be fine. Try it, you'll see what I mean 🙂
~All the best!