Hi infokill,
I applied for the 2010 program while in Japan, so maybe I can help with a couple of your questions.
1. Recommendation Forms: I looked for a Japanese copy to no avail. In the end I translated the form myself and gave it to my supervisor along with the original, requesting that he fill out the original English form. If you can't translate the questions yourself, you can probably get a friend to take care of it for you.
2. Living in Japan: It's not going to hurt you, and in some ways it may help: you'll most likely have a recommendation for someone who will vouch that you do fine with the difference in culture/etc., and if you've put some time into language study during your stay, that will look good on your application. But don't count on it too much; in fact, you can most likely assume they'll be other applicants in the same situation. At my embassy there were three applicants who had flown home from Japan for the interview.
3. Abstract of Thesis: I wasn't required to do a thesis in undergrad either. Just tell them that it wasn't a requirement in your program.
4. Typed or Hand Written: I typed mine. I doubt that was the deciding factor, but if you're going to invest a year of your life into this application, you may as well take the extra ten minutes to type it up. You really want every element of your application to look as professional and as serious as possible.
Good luck with the application process!