A 258 Kobold Flood doesn't replace the normal grapple effect of performing a grapple combat maneuver, it adds an additional effect when you grapple in that specific circumstance. So you and your target are both grappled, as normal.
A 259 Yes.
A 260 No.
A 261 Yes.
A 261b If they use a weapon that isn't the reach weapon, yes, like if you change the reach weapon to one hand and punch it with the now free hand with a gauntlet or unarmed attack.