Good idea! That should work. Just make sure that you can generate frequencies close enough to the needed vertical and horizontal syncs.
btw. we use PAL here in Finland too, but TVs and monitors these days seem to accept PAL and NTSC.
Collisions are handled by the game logic. I simply check if the bounding rectangle of the player collides with the bounding rectangle of the enemies.
Yes, there are a few tricks at play 
There can only be three sprites per scanline but I do multiplexing so that I have different set of three sprites per scanline. There can be virtually any number of sprites on the screen vertically. Also, collectable items like gold and hearts are technically background tiles. I just animate the tiles, i.e. swap their tile pointers in RAM. I divide the screen vertically to regions and scan one region each frame. If the tile is a heart or gold I update its pointer. This way updating the tiles is quite efficient.