1. Yes, the writer is dreaming about California because he is not there.
2. Sure, you could put any location in the title, but the lyrics might not make sense.
3. "[i] stopped into a church I passed along the way."
As I was walking, I saw a church and I stopped in there.
4. The writer assumes that the preacher likes the cold because he (the preacher) is living in a cold climate.
5. Here the assumption is that the writer has moved away from California to be with the woman he loves who lives somewhere cold. The writer is saying that if he could sneak away without saying goodbye to his girlfriend, he could move back to California; however, if he had to face her and tell her that he was leaving, he couldn't do it.
This is one of my favorite songs, you can find the lyrics here:
California Dreamin' - Mamas and Papas Love Song Lyrics It was released in 1966