1) Taking so many pictures (10 to 20 a minute) , will I reach then EOL of the shutter?
Yes you will. I don't know how long they last, but a million shots sounds like a lot. It should last long enough for a fun proof of concept slash cool toy... unless it takes you a lot of testing to build it.
2) Can CHDK take pictures w/o releasing the mechanical shutter?
Yes, it can dump the live view image. It's not an everyday thing to do, but the motion detector debug commands have that included (without any compression). That image is of course quite crappy in quality and resolution compared to actual photos from the same camera, especially in the dark. Video mode also uses live view image, but you can't stream that outside the camera or process it in any way in camera.
3) Can CHDK scripting manage the SD storage card?
4) Can CHDK erase the oldest pictures autonomously?
Yes, Lua can list and delete files, among other things. See the Lua scripting section, there's an ongoing effort to provide some libraries/examples to help users write scripts that do these things.
5) Can CHDK detect when the card is full?
Yes.
But your real problem is either
1) how to process those images in the camera (the ARM CPU is a general purpose processor and it cannot do advanced image processing in real time and we don't have access to the DSP/whatever compresses JPEGs etc in the camera), or
2) how to move images from the camera for further processing, or any other data for that matter.
#2 is a problem, because we do not have full control over USB. Eye-Fi is the smoothest thing that's being used, and I hear it requires frequent reboots. I experimented with PTP in REC mode quite successfully, it mostly works (see the devel forums for further info, search for "webcam operation"). There's no support ready for that in current CHDK builds, though.
For signaling, you can encode messages in LED blinks. For real, that's the only way of communication out of the camera that actually works for all models (well, almost).
IMO, if you go with live view, you're really better of with a USB or composite video (web)cam as they are lighter and cheaper and the quality is not that different.