No the lower the number the smaller the needle. Smaller needle will give you more control over amount of paint being sprayed. Needle and tip are used together. If you are using a #1 needle you need to use a #1 tip.
As for chucking the needle, yes you are correct the lock nut just secures the needle. It doesn't push it in or out.
As for lubing It depends on what kind of paint ur using. I don't lube mine. The needle is pretty much the only part that gets any wear, and the packing washer is soft enuf that it doesn't hurt the needle. The only place I have problems is at the trigger insertion point (the slot on the top of the brush). It seems that I have a nasty habbit of pushing sideways on the trigger sometimes. This can cause the brass to wear a small groove in it. It doesn't bother me when I'm working in big areas, but when I want hairline detail it has a habit of getting caught in the groove and forcing me to pull back harder... then it lets go and I get a SPLAT of paint. OHHHH that pisses me off

Anyway that's my 2 cents.