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For that I would say that you could not attack the monster that would cause the loop. Since the attack would cause the monster to flip up and initiate the loop, and your not allowed to cause the loop to happen, the attack would be an illegal action.

The current ruling is that neither player is allowed to cause an uninteruptable loop. So if Gaia Power, Gigantes, and Zombyra the Dark are face up on the field Pole Position could not legaly be activated. If Gigantes, Zombyra the Dark, and Pole Position face up then Gaia Power could not legaly...

A face down down monster does not have 0 ATK and 0 DEF. A face down monster has an unknown ATK and DEF. Smashing Ground can't destroy a face down monster since there is no way to tell if it has the lowest DEF.

To the best of my knowledge it has been that way since the very beginning. It may not have been a big issue untill later but I'm pretty sure it has always been that way.