Eastwood -
Explaining the EDI process is similar to explaining how you connect to the internet. You have to have a browser, and hardline connection and an ISP.
Whether you do XML or EDI, you have to have some kind of translator that puts it into a standard that you and the receiver can relate to (this is where standards come into play). XML, even though you can create your own tags, follows standards (ie. ebXML, Rosettanet, SOAP....), same as EDI (X12, EDIFACT, UCS...).
If you plan on receiving or sending EDI - you need a VAN. This is like your ISP. Unless you are part of the ANX world, EDI is a pull system - The sender sends their EDI to their VAN who will forward it to your VAN, where it sits in your mailbox waiting for you to pull it down (similar to a PO Box).
XML works if you just want to send an electronic document to a partner. With the Style Sheets they use, the receiver can easily view what you sent them (just like email), but can not easy import it into their system and return an acknowledgement or ASN/Invoice back to you without an XML translator on their side.
Hope this is not too confusing, but the solution you want really depends on what your business process requires.
I would lay out who you plan to send and receive documents from, how much of that you want automated, and what your partners (suppliers/customers) can handle.
So for your questions:
1) You can certainly do a combination of the two. Most EDI translators these days will do both. Just deciding on the flavor of XML will be your next choice (ebXML, Rosettanet, SOAP....).
2) Most hosting companies can take an EDI order and send it to you in whatever format you want. EDI to XML, or flat file directly into your system, or even host everything on their system and give you a web browser to view, create and send orders from. They're quite accomidating these days (because of the customer mandates being given). But there are costs associated with all of that, most of the time it is volume based.
Doing a google search for EDI or EDI VAN will give you a grundle of returns - not a lot of useful stuff there though. I would go to the source and start there.
www.disa.org
www.x12.org
www.w3c.org
www.ebxml.org
Hope this helps,
Kristian