1. Yes they are stored on your 360 Hard Drive.
2. KOTN isn't from Evil/Bad people, because you loose all your hard earned Infamy points from Pilgramige. Next you lose the armor if you have 2+ Infamy, meaning you can't kill anyone, so KOTN = for "good" guys.

Next, my opinion on is it worth it...prolly going to upset people, if this forum is still read...I just scrolled through and saw a question, I'm a HELPER!
I DON'T think KOTN is worth it. out of the Plug-in's it's the WORST. I've read Wiki, and personal experince through a friends game(as in he has Frostcrag,KOTN,SI,Vile Lair,etc for me to compare this to). The quest itself is a "meh" quest, it's not like: "YAY! BEST QUEST EVER!" like DB. It's more like: "Finally I got this done..." Like getting into the MG(for alters) or finishing FG. The Crusaders Armor, its kool looking and decent in armor rating/stats but Glass/Daedric without encahntments surpass it, so with them, no contest. I'd say if you have the money to blow buy KOTN, just to say you've beat it if nothing esle. I'd buy KOTN last, but I just got GOTY, and use my friends, so I kinda have them all
[/rant]

Hope this doesn't upset to many KOTN fan-boys/girls, but SI, or just regualr Oblivion are much...much...much...better.