Yeah everything 1.3 is compatible. A few things might have minor visual differences, though (sizables now all have a bottom-end visually distinct from the middle section, for instance).
Usually, episodes are launched from the launcher. You may decide to instead load into a different episode, exit out to the title screen, and then navigate over to the episode you actually want to play. This method is fairly redundant, though, and its sole benefit is for very specific smbx recording intros.
The ingame menu has always been customizable by changing intro.lvl. However, you are also able to create a launcher page specific to your episode, which has the benefit of other people seeing that before starting the game. Here's the thread on how to do that:
Hope that resolves those questions.