1) For the first question, yes: those masters are lost.
Let me clarify the master's situation:
Film Score Masters: These masters were recorded in Abby Road Studio (excepting one track "Superstructure Chase" which was recorded in another venue because of time constraints). These masters contain all the film score material. These masters are then copied, edited and so fourth to make the final film mix. Those are then what are usually used to make the soundtrack releases.
Album Recording Session Masters: It use to be that film scores never got the releases we see today. No one really cared. But, ironically, the very thing that caused 'classical film scores' to loose out in the main media was the very thing that created the first soundtrack/score releases.
Many films had popular music play in them. Think of the old surfer movies with people dancing on the beach or even up until the 80's with "The Breakfast Club." These films had many popular songs play in them. But back in the 50-60's, composers usually would compose a main title that was lyrical.
Williams did many of these old films in this style. One such is "Penelope." The main title has people actually singing in it... or "John Goldfarb, Please come home!" These scores, because of the popularity of their almost strictly "pop" music scores began to cause interest in musical releases.
So, many scores would be recorded for the film, then latter, the composer would come back, arrange the score into several tracks that are shorter and highlight the main points of the score, and release a sort of "Concert Suite" album.
With the advent of much better editing practices and such, as technology developed, Williams slowly stopped doing this, and simply would take the Film score masters, and have those edited to create the album release. Notice certain scores like "Checkmate" have never been released in their complete fashion, but rather, the album re-recording has been remastered and re-released because it's all that's survived.
But, sometimes Williams will go back to this practice and make Concert Suites for the films. Star Wars you'll notice only had one: Princess Leia's Theme. There was also the edit of "Main Title" that then transitioned into "End Titles" but that wasn't recorded that way.
Jedi, however, had a separate session about a week latter if I remember right where the LSO and Williams reconvened and recorded the concert suites.
"Jabba the Hutt's Suite"
"The Forest Battle Concert Suite"
"Parade of the Ewoks"
"Luke and Leia"
and lastly, because they re-edited "Sail Barge Assault," Williams was asked to rescore that sequence. The rescore was recorded during the album recording session as well. However, the editing of the sequence continued on for many more weeks, and by the time the sequence was perfected to how we see it theatrically, Williams was no longer able to compose for the scene so they simply used the material he composed and edited it like they had the scene to match the new edit.
This may also be where he recorded the "Ewok Forest Battle Insert" as well... which may be why that is not on the set.
The Source Cues Masters: Frankly, I don't know too much about these. From my knowledge they were lost, but strangely, there are source cues on the set lol. These were recorded in a different studio by completely different people.
From my understanding the Max Rebo Band music ( #1, #2, an unused source cue and Lapti nek) were composed in a collaboration between Joseph and John Williams. I'm not sure to what extent. I've heard the Joseph composed the music for the source cues and that his dad supervised. I've also heard that Joseph did the lyrics which were then translated into Huttesse by Ben Burtt and some other person.
The source cues include:
Jabb the Hutt's Baroque Recital
Lapti Nek (Film) / Film Instrumental / Album / Extended Album/ Album Instrumental / English
Max Rebo Band Song #1
Max Rebo Band Song #2
Part of the Tribe
Unknown Source Cue
and possibly the three Ewok Yub Nub/Choir/Film versions were recorded here
(and then of course "Jedi Rocks" many years latter).
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These are the THREE sets of masters. When the first album was released, they had access to all of these. When Ford Thaxton set up the 4 disc anthology, they had access to all of these.
When they went to do the SE, everything had disappeared. All that was available were the copies of the film score masters and presumably only a couple of the source cue master reels.
Because of this, the quality of all the cues is severely diminished (as whenever you copy something you loose quality).
The SE, however, does contain the concert suites, but notice not all of them.
Interesting to note is that on the Anthology, the Return of the Jedi track "Han Solo Returns" has the ending to the album recording session of "Jabba the Hutt's Concert Suite" incorrectly placed at the end. On the SE, they correct this and use the originally composed version (although still not what's heard in the film as that's simply tracked music).
The reason the SE does have any of the concert suites is when an album is produced, a master copy of the entire album is created and the ones produced on CD are copied from this master copy. The master copy has very good quality and is almost comparable to the original masters (but still is slightly less).
When the SE was produced, the Anthology master was available and it is from THAT which the concert suites are taken (which also includes the Film "Sail Barge Assault").
Because of this, the sound quality is arguably "clearer," but technically only slightly so due to the limitations. In essence, the only difference is that the SE version has been digitally mastered which added arguably some clarity, but did add a bit of tape noise to it.
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After the SE was produced, however, the Original Score Masters were discovered. It is THESE that should have been used but could not be because they were missing.
Now that they have been found, the complete score as recorded for the film (not the source cues and not the album cues) can be presented cleanly and clearly.. and should, in theory, be as great sounding as a modern film score do to the advances already in place at that time.
It should also include about 90 seconds of missing score that the SE doesn't have.
Unfortunately, I have not heard if the other masters have been found. The Album and the Source cue masters are seemingly lost forever, which is Lucasfilms official stance.
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2) I'm not too sure about this...
When a score is prepped for film, they music is edited to fit the film. The source cues, however, I think may be mixed in with the SFX mix and are mixed separately from the score itself.
If you go on starwars.com, you can do video mashups. These prove that the SFX alone film does exist. The music alone film, however, I do believe exists but I do not think they had access to. That, again, would be unnecessary really because they had other masters from which to work. They actually had very little help from Lucasfilm when producing the Special Editions. When they discovered the best quality original masters for Star Wars, Lucasfilm was thrilled! You'd think they'd already have them but no, they'd been sitting in a closet in a recording studio all these years.
That's the score. The source cues like the Max Rebo and such I do not believe are mixed the same way. Because they change depending on the environment. MY GUESS is that they are mixed in with the SFX layer... but you do raise an interesting question... even though they would change in how they sound because of the environment changing and the barge flying by and such... it may be possible for they to find that music and at least isolate it.
3) Joseph Williams is actually a very accomplished composer. For the Prequels, he wrote all the source cues... composed and everything.
He's a composer. He does more pop style music, however. He also is a singer. He did the singing voice of the adult version of Simba in The Lion King (why it wasn't Mathew Broddrick who can sing and sings on Broadway, I don't know lol... I guess they wanted a more masculine voice oh well)...
But yes, he is a composer and an arranger and a lyracist. He writs "pop" style songs. They aren't ... brilliant... but they're ok. As far as the OT goes, those source cues he did write the lyrics to... and as far as I know he at least arranged the music if not performed the electronic/synth portions.