1. The other factions can't do as they like. I have seen many of them being excommunicated. I even had the HRE excomm'ed when the Pope told me to make peace with them within 7 turns. I pulled all my troops out of the HRE and sent a diplomat. His offer of ceasefire was rejected. On the next turn they attacked me and promptly got excomm'd. Looked to me like the game had taken in to acount the fact that i had done all I could to let peace break out.

2. You need to build more and better religious buildings. They have a positive impact on the % of catholicism in a province. Inquisitors appear in ares of high heresy, so if the impact your priests have isn't fast enough they will appear. Buildings will help convert an area quicker and reduce the chances of inquisitors appearing. Your priests will increase in skill over time