1) Does this feat allow spellcasters to cast a spell that is one level higher than should normally be able to. For example, a level 5 Druid sacking two level 3 spells to cast a single Summon Nature's Ally IV? Or a wizard sacking two level 3 spells for polymorph.
Maybe my memory is faulty, but I believe the answer given in the last round of FAQ by the Sage was that this could allow higher level spells if a metamagic version of a known spell were cast. For example, a 1st level sorcerer could use two 1st level slots to cast an Extended Mage Armor if he had Versatile Spellcaster and Extend Spell. Whether this grants said sorcerer actual 2nd level casting to qualify for PrCs is another question - I believe that RAI it certainly doesn't, but RAW it falls into nebulous territory. As a DM, I wouldn't allow my PCs to use it to qualify, however.
While I don't believe this feat should work for prepared casters (see below), were it allowed, I don't think this would work for a druid, as he should only gain access to spells at the levels he can normally cast them at. For a wizard, however, he can write a spell into his spellbook before being able to cast it, so I'd say hesitantly yes.
2) Can prepared spellcasters make use of this feat to manage their spells per day to have fewer, more powerful spells?
For what it's worth, I think that the RAI is that Versatile Spellcaster only applies to sorcerer, bard, dread necro, and other spontaneous casters. Druids with SNA, clerics with Cure X Wounds, and wizards with spontaneous divination or spontaneous summoning are able to spontaneously cast some spells, but they are obviously not spontaneous casters in the same sense as a sorcerer, which is all that a DM should need to point out before making a ruling. It's similar to qualifying for UM with a single-class wizard using spontaneous divination, and then using UM to advance Nar Demonbinder - it's definitely not RAI, but it might pass RAW, which is enough for some DMs to allow it.
That said, I can see a DM allowing a prepared caster to take this feat, with the understanding that it will only be used with the spontaneous options. Again, I believe that RAI it still would not qualify for early PrC qualification.