1) You must assign 7 wounds to the new target. Disrupts are resolved in step 2 of the timing structure, and the corresponding action of Short Fuse is executed in step 3. ("would" is a timing word which is used here because the Disrupt needs to be triggered+resolved before the action. Just as specified by the timing structure.) Cover Me! allows you to choose another target and redirect the wounds. The original target won't be affected at all. Furthermore, the text uses "instead", so the replacement effect (giving 7 wounds to the new target) replaces the original effect completely, and the old target doesn't matter in any way.
2) Technically interesting question. You're right, it comes down to "are trigger-restrictions/conditions part of the effect"? I can't find anything in the FAQ… But I'd rather think it IS part of the effect. (The restriction is written behind the bold trigger word. Additionally, Eryn Cochwyn would force opponents to sacrifice ANY Tome card I want, if the restriction weren't part of the effect. But if the restriction were part of the effect, Tomes like The Necronomicon Al Azif (MU) at least have this defense against Eryn Cochwyn, because the resolution of the Tome's effect would fail and due to the "then", the tome would not have to be sacrificed.) Probably it's best to submit this to FFG, I'm interested in the answer as well. Perhaps ask with the example of the Al-Azif Necronomicon, because there is a timing restriction (after story resolution) as well as a general restriction (attached character needs to be committed to that story) in that effect.