This can be done by using custom form.
a) Change the "Submit" form to remove pricing info etc, as users will just be submitting articles.
Possible but will require code modification and or through the use of child themes.
b) Change wording on the site to reflect "Articles" instead of "Ads". - For example; "Article Categories" and "Manage Articles" and "Post an Article".
No default option on this but can be done through code modification as what other users have done.
c) Can I make it compulsory to upload an image for each article?
The theme will work out of the box without the need of the plugins as in the demo page. Third party plugins are all not guaranteed to work and will may require code modification to make them compatible with the theme's functions.
d) Do the plugins in the demo come out of the box, or are there customisations needed to make them look like the demo?
A knowledge in php, html, css, java and etc will definitely come handy for the theme modification as mentioned above. If you are not comfortable doing it yourself you can hire the services of an experienced coder to do it for you. You can contact some of Appthemes certified community partners here
http://www.appthemes.com/partners/ for customization jobs.