You don't add the JVM to your classpath, you add the lib directory that contains the classes. Usually this is done in the dsenv script so that every DataStage process automatically gets the settings.
I don't think it's fair to say (at least in version 8.4) that Framework Manager creates any metadata. Metadata are stored in the unified metadata repository of Information Server, which any of the Cognos tools can access via metadata delivery and analysis services.
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It doesn't matter what you do when loading the hashed files. This is the write cache. When you're using the hashed file stage to source rows for a reference link, you can enable the read cache, which is independent of the write cache.
You need to determine where the error occurred, and that involves testing each and every one of your ErrCode variables. Particularly the one for SQLConnect(). For example you may have to use SQLSetConnectOptions() to set up the operating system login ID and password. Any time a BCI function returns ...
Read it with an XML Input stage (perhaps fed from a Folder stage). Beware that one XML file may contain repetition elements, which means that the data are not normalized. If your target requires normalized data then you may require multiple CSV files (Sequential File stage) or tables (database stage...