Answers:
Yes.
"No, you use quotation marks to designate a conversation."
"What? You're kidding."
"No, I'm completely serious. Have you never heard of quotation marks?"
you could, but i guess it's better to use quotation marks. :)
If you are writing down the conversation verbatim (exactly word for word as it was spoken) then you would designate this by using quotation marks - you can also italicize it if you like but it still needs to be quoted. If, however, you are writing ABOUT the conversation and summarizing it in your own words, then none of the above is necessary; then it becomes reported speech and/or 3rd person viewpoint.
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