Okay, to answer the question you have about the whole, "Who killed shino then?" issue you have, here's an AMV which shows what actually happened that day.
http://youtube.com/watch?v=3QiLy5G0bKk------------------------------------------------
To explain what the azure characters are, think of cubia. The bracelet was orginally made and went against the system parameters set down by morgana. Cubia was a designed to deal with system abnormalities.
The damaged character models of the azure's were repaired and were then formatted to function similarly to how Cubia functioned. Correct system abnormalities... This might seem off at first thought, but if you watched hack//roots, haseo gained his third form character in a very unusual way, one not outlined in R:2's system parameters. The attack against him is completely valid to Kite's programming seen at the beginning of Vol.1.
The epitaphs are actually part of the system. If you watch "The end of the world" that I posted further down, you can see that the R:2 game was designed specifically to be capable of supporting the epitaphs. They are actually a normal system.
The only snag I can't quite figure out is the guy who got Data drained in the dungeon. The video of which Yatta shows us in Vol.1. If he was a hacker of a cheater, I don't know.