i'm probably the only person on NS that can answer this.
1. has anyone done it? yes, i have done it. cyanogenmod is a very stable rom to run. this is usually the first rom a new user runs.
2. will i lose my apps, contacts and pictures? indeed unless you create a NANDROID backup, using somethine likeClockWork Mod or TI backup, etc.
3. does the phone have to be rooted for me to flash it? YES. you won't even be able to get to the bootloader screen to prepare for a flash if you aren't rooted.
4. the rom is for droid, will it work for milestone? yes it will. if you look on that link you posted they are the exact same phone, just different names for outside the us carriers (like i have a droid incredible 2, but its called the droid incredible s outside the us)
if you have anymore questions you can pm me, always down to help someone who needs help with rooting and flashing and such.