Powering my layout ??

See Lionel Legacy Control System Manual  for Legacy running.  See p. 72 of the legacy Manual for "conventional" that covers the conventional engines.  It appears you control the track with a Legacy remote through a Power-House set, whatever that is.  See TRAINMASTER COMMAND CONTROL AND CONVENTIONAL POWER for running any ac powered train.

My preferred system for running everything (other than having both systems on same layout) is MTHDCS with TMCC as secondary.

1.  No.  Study both instructions above and you might be able to get enough information to ask specific questions like "Exactly what equipment would be needed to run all engines with the Legacy system?"  I'm not familiar with the Track controller box.

2. No. (not easily)  My track divisions are set up so they can be controlled digitally or conventionally.  See my Toy Train Layout Wiring  with all kinds of information.  Your track loops/sections are isolated with insulating pins between the center rails and separate feed wires run to each section.

3.  Yes, you can buy Electric Railroad Upgrade kits.  Installation would probably cost $150 to $300 plus the kit.

-Q1/1A: You will need a 135W or 180W Powerhouse in conjunction with a Legacy Powermaster. I use the 180W PH/LPM on my layout. The 180W LPM/PH combo will give you the power you need for multiple Legacy locos and also conventional control.

-Q2: Not at the same time. Use two separate loops or isolated track sections. If you add LCS, you can wire up to 8 isolated blocks to a BPC2 and use the Legacy, TMCC, or Cab1-L remote(s) or the LCS I-Pad App to turn on or off the blocks.

-Q3: ERR upgrades are doable, but they can be expensive, especially if you pay someone to do the upgrade instead of doing it yourself. The 180W Powermaster is only $100 (less if you buy one on Amazon or at a good hobby shop).

I'll say it again: Legacy is amazing! I would totally recommend the system. I'm planning to add LCS (and maybe MTH DCS) later on as I continue to expand my layout.