I think you need both. If you never stop or slow down, it's hard to build the proper muscle memory to improve and get more accurate. However, it's also valuable to practice playing through mistakes to finish a whole song. Mistakes happen, and if you're playing for a crowd you can't just stop and start over.
Yes, both. A good example why is for example, as muscle memory grows it will bias your note selection when improvising. Sometimes you really need to slow down to consciously force yourself to explore other sounds. Once you've done that, you need to wear it in again so it sounds natural in your playing.
Absolutely. You can get "locked in" to certain patterns / phrases just via muscle memory and familiarity. Need to balance that with a little improv to find new patterns phrases you like, and then can train those in via muscle memory.
I repeatedly play the same phrase though.