You've got a point there. But without the Linux kernel, GNU doesn't have a complete "free" O/S, so Stallman would have a dependency somewhere else. (Merkey perhaps... that would be fun. ;-)
As long as Torvalds has a choice of which version of the GPL he can use, he should be happy (IMHO).
Yes they would, GNU can run on free versions of UNIX. They are even working on their own kernel, where does Torvalds stand on writing his own compiler?