Very good choice of device; barring the unavailability of some apps today it is still very useful as a phone device and fun to play with!

Flashing to updated version is of course your own decision; and really I cannot remember offhand what fixes/addition were brought by version 1.3. However there should be a feature list somewhere on maemo.org.

If you flash it, depending on the type of flash you do all your installed applications may disappear and you need to reinstall. also depending on the type of flash, your application data and personal data (pictures and so on) may remain or be wiped.
So be careful what kind of flashing you are going to perform

Of swype I am not sure how to enable it... I remember trying it on N9 but it was years ago... Anyway I just hated it, it could not guess what I wanted to type and everything was a mess.
(maybe it is just my style of typing, I have never gotten swype to work with me in any device, it is just a piece of crap as far as I know)

The application packages for N9 are normal deb files, so you may put them wherever you want to, and install from there.