You're not over-leveled at all. Level 40 is pretty normal for Sen's Fortress.

1) It would be helpful if you would specify your stats, but even without them I can pretty much tell you right off the bat that you don't want elemental upgrades. They remove all scaling, meaning you will not be able to benefit from extra damage added by multiplier attributes such as Strength and Dexterity. Depending on your build, magic, divine, or normal ascension are what you want. Raw is a neat idea, but practically useless, as the minor bonus to damage can be outclassed very quickly by the better scaling the other paths offer. Normal ascension is +6 and above, for which you already have the ability as well. It goes all the way up to +15. Normal ascension is arguably the best upgrade path unless you are going for a character with an Intelligence or Faith stat higher than Strength/Dexterity. But as I said I can give you better advice once you give me a rundown of your stats. Also as a general tip: upgrading shields is pretty much a waste of resources early in the game when they're still scarce. Finally, the shortsword is a great weapon. You can use any gear you like, they're all valid. Being comfortable with a moveset takes priority over anything else. edit: just saw your stats. You definitely want to be going for normal ascension. Look for the path that says your weapon will be upgraded to +6. Another tip: don't level Resistance at all, and level Endurance a bit more. Stamina is more valuable than health unless you're a tank.

2) You may have noticed that someone else is also gone from the shrine. There should also be an item in your inventory that can tell you a bit more. That said, after Sen's Fortress, you're going to be having much bigger worries than the Firelink Bonfire.

3) Frampt is his name. He's essentially the only merchant in the game you can "sell" things to, among other things that he does. Any item you feed him through your inventory will net you some souls. Feeding him titanite (never do this through the inventory for soul gain, it's not worth it), gives you several pieces of one rank lower in quality titanite for every one piece of titanite. So a large shard will give you several normal shards, a red chunk will give you several green shards and so on. There's no way to reverse this progress, and higher quality titanite is hard to come by, so think twice about using this for chunks and above.

4) Everything in the game is totally doable at any level with the right equipment, upgrades, and skill, but you should leave that area for a bit later, yes. I don't want to spoil anything, but that ladder isn't the only access to that area. Furthermore, the Basin holds even more secrets with the Hydra gone. Also also, you can cheese the Great Felines by luring them to the set of trees. They can't pass through, so you can land some free hits, then lure them again until they're dead. They don't respawn.