It would be a big mistake to sell him even with a buyback clause IMO. He would lose that connection with the club I think, he's a confident lad and if he did well elsewhere he might not want to return. A loan is a better option, although I'd prefer him to stay altogether. That said Pep needs to give him game time to continue his development.
Indeed it would. Not to mention the economical aspect.
It will be a very tough choice for Pep to make. Buy Cesc, who arguable is the long-term replacement for Xavi and that way potentially risk Thiagos development/future or just keep Thiago and abandon the Cesc idea completely once for all.
I have my doubts on whether both Cesc and Thiago would be able to succeed in the same team especially when Xavi, Iniesta, Mascherano, Busquets and Keita are around.
Metaphysical:
Thiago is not that type of a player. We would lack goals if he played upfront. He is WAY better in Iniestas ans Xavis position.