Everything is vise versa actually. MSSR protects the owner of short position, since it puts a limit on a price at which the borrowed asset is bought back when margin call is triggered. For the trader this limit is not good, because it does not allow to sell at better price.
Well, that depends on the direction from which you're looking at it. :-)
The fact that the blockchain will buy above the market price is an incentive to both, like I described. The fact that there is a *maximum* at which the blockchain will buy protects the shorter and limits the effect on the trader, like you said.
Because it is difficult to find a balance there, the MSSR is not hardcoded but part of the price feed data, and can thus be set by the feeders.
Also, settlement price and feed price are two different prices for some bitAssets due to settlement offset.
That depends on what you call "settlement price". In the code, the term is used both ways.
I left the settlement offset out of the example because I wanted to keep it simple.