1. Is it possible to colour threads as viewed, once viewed in multi-thread

Good idea! So far this is done by the browser history so an own mechanism for doing this would be necessary (e.g. cookie based). I'll think about it.

2. Instead of complete threads in each post, is there a way to only show posts made below it?
With huge threads visitors get tired of scrolling down to read the bottom threads.

Personally, I find it more clearly laid out if you have the complete thread "at hand". But you're right, it should at least be an option.

There's just one line to change if you want to do it by yourself:
includes/entry.inc.php, line 92:

replace

if(isset($child_array)) $tree[] = tree($entrydata['tid'], $child_array);

by

if(isset($child_array)) $tree[] = tree($entrydata['id'], $child_array);

Alex