The best character is completely based on how you play. The Orange knight is the strongest if that's what you mean. But, out of every character in the game including downloads and unlockables the presets are actually the best.
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Castle Crashers is not available on the PSP.
Just kill the painter bosses paintings in the castle crashers
This an opinion question but I think the elephant is the best because it gives you +2 strength.
You have to complete the game at least once and you can only do it with the character you completed the game with. Be warned it is 5 times harder than regular and it is best to do it in multiplayer to save you a butt whooping.