It dies, so it lost it's -1/-1 counters. It will come back, because undying checks if it had +1/+1 counters on it before it died; it did not, it had -1/-1 counters on it. So it does come back, as a 3/2, because those -1/-1 counters were lost the moment it died.
The reason so many people got Garruk is because he is a double faced card, and you can open any rarity of a double faced card as well as your regular rare spot...so he's going to be appearing more often in that double faced card spot as opposed to the rare spot.
I can't really see this being used...
There should be, but I don't know for sure.
Really nice ending there, though.
(And this is the part where people tell me how to stop Splinter Twin...lol)