1. The levees did stop the annual flooding that laid down new soil. Without it New Orleans was slowly sinking so in that sense yes the levees made things worse.
2. According to this report:
THE CREEPING STORM
By Greg Brouwer
JUNE 2003 CIVIL ENGINEERING MAGAZINE
http://www.pubs.asce.org/ceonline/ceonline03/0603feat.html
The pertinent paragraphs are:
In 1999 the Corps was authorized by Congress to study the feasibility of various proposals for protecting the city against such devastating storms. An obvious possibility would be to raise the current levees to a height deemed acceptable by an AdCirc analysis. That, however, would also require widening the levees, which may not be possible in many areas because of the proximity of homes. Among other alternatives, Naomi will investigate the possibility of creating an immense wall between Lake Pontchartrain and the gulf to keep water out of the lake during a severe storm. Such a project would involve constructing massive floodgates at the Rigolets and Chef Menteur passes, where storm surge would enter the lake.
According to Naomi, any concerted effort to protect the city from a storm of category 4 or 5 will probably take 30 years to complete. And the feasibility study alone for such an effort will cost as much as $8 million. Even though Congress has authorized the feasibility study, funding has not yet been appropriated. When funds are made available, the study will take about six years to complete. “That’s a lot of time to get the study before Congress,” Naomi admits. “Hopefully we won’t have a major storm before then.”
And this
The Corps estimates that in southeastern Louisiana a football field worth of wetlands sinks into the sea every 30 minutes, leaving the residents of the area more vulnerable to hurricanes every inch of the way.
In an attempt to curb this growing threat, or, as some refer to it, creeping catastrophe, the Corps is developing a plan—in collaboration with the U.S. Environmental Protection Agency, the Louisiana Department of Natural Resources, and other state and federal agencies—to rehabilitate coastal wetlands throughout Louisiana. Known as the Coast 2050 Plan, it would require $14 billion over the next 30 years to restore natural drainage along the coast and direct the movement of sediment from the Mississippi to rebuild marshes. It also calls for the installation of sediment traps at key locations in the river, from which the material would be pumped through 100 mi (160 km) long slurry pipelines to rebuild wetlands and barrier islands.
Not quite so simple and cheap as many here are making it out to be.