1. Yes, but probably you should just keep your answer brief and don't say something that will require him to ask additional questions. "Things are going great, thanks!" or "Things are a bit tough at work, but it will be okay."
Then add "Hope things are going well for you, too" or something like that.
2. You are a good friend. How many other friends there are like you, I cannot know. I would understand that you were not "significantly more special than absolutely anyone else." (That is, if you thought you had a romantic understanding with this person, you were mistaken. However, if you count this person as a good friend, you are correct.)