1) They keep standing up. OL wins when win requirements are met.
2) Hero can recover without any surges. He simply keeps all his fatigue tokens on him.
+1 to both of these answers. A hero can be out of fatigue without being KO'd, as long as he has wounds left.
Also note that when a hero is defeated (by any means) he immediately suffers fatigue up to his Stamina rating and wounds up to his Health rating ("Knocked Out", pg 15), so technically, every time a hero is revived and rolls no surges, he will be standing up without any fatigue. The bit about suffering wounds up to his Health rating is just to cover cases where a hero is KO'd by something other than losing his last wound (ex: lava.)
Roy Batty said:
Also-- Has anyone figured out how to convert the quests from the 1st Ed sets to 2nd?
I've got a little project in the wings for that. Far too early to share with anyone just yet, but keep your eyes peeled.