So in answer to your questions:
a) Yes, all member servers and clients will be fine. Only pre-2003 *domain controllers* will have a problem. You will need to remove these before raising the level.
b) Raising the functional level can be done during working hours as it's pretty painless and takes seconds. There should be no effect to users. That said, it's always good to have backups and if you are worried you can do it out of hours.
Tony