1.) I first ran into the boxes because I thought they were the sprite itself, but yes, they're a good indicator. With more complex sprites and backgrounds, I think it'll be clearer.
2.) I would! I think it's fun figuring out who wants what and where to find each object to trade up. Maybe change the conditional dialogue so that he doesn't ask for a shramp every time because that starts getting a little repetitive, but I think you have a really fun game so far. :D