Advice on Swap to Dot 5 - New MC

I will do the wet road test to see if they are locking appropriately. I suppose the front should lock at the same point that the rear do??? Just to be sure, I'm not clear on that.
Correct. If either end is to lock up it should be the front first.
Practical testing is difficult to cover all scenarios. At low speeds - nailing the brake pedal will almost certainly cause the fronts to lock, especially on slick surface.
Why? There's not much tire traction, weight is distributed front and rear, and the brake force available can easy hold the drum or disk. Drums are self-energizing so slamming of the pedal is worse than with a disk.
At high speed or using a more modulated braking force, nothing should lock up. The application of the brakes at speed causes the weight to shift forward - you can see and feel this on more softly sprung/damped vehicle but it happens to every vehicle. With less downward force on the rear wheels, there is less traction and it becomes easier to lock the rears. Tires and condritions that allow maximum grip, higher initial speeds, are all going to be factors in shifting weight forward. Really hard to test this thoroughly. Obviously driver's braking technique is also an important factor.

My buddy swears by it. Do you or does anyone know if it prevents the WC's from deteriorating as rapidly as they do with normal fluid??
That seems to be a big reason people switch to DOT5. Off hand I don't know a study that proves it but might look into the reason the military and US Post Office use SBBF for most of their fleets. Also the service internals and procedures they use.
There's a bunch of references cited in this paper - see if there's one on that aspect. http://www.niagarabritishcarclub.org/index_htm_files/Brake Fluid.pdf

It seems to me if the normal fluid absorbs moisture, it will rust the lines, that will generate debris which cuts the cups and makes them bleed. Is that right?
Not really. The Glycol based fluids aborb the moisture and have corrosion inhibitors. Somewhat similar to propylene and ethythene glycol anti-freeze. By absorbing moisture glycol based brake fluids insure there are no free water droplets in the system. But the more moisture the brake fluid absorbs, the lower its boiling point, and also the corrossion inhibitors get used up, etc.
That's when corrosion starts. I usually see it in the master and front disks first, but that may simply be the quirk of my experiences.

Since the silicone doesn't absorb at least "as much" water, it seems like it would cause the cups in the WC's and the O-Rings in the MC to last a lot longer.
Suppose it depends on what the cups are made of but the important thing is the brake fluid is compatible with the materials. Once corrosion starts the real issue IMO is the damage to the cylinder walls and pistons.

But for now, I will use the same Dot 3 that is in it to completely flush the system, since it has been a long time since it has been
That will work. No doubts there!

I will most likely get new lines for the rear and front, and put new rear WC's, and a new MC all at the same time I install the Discs. I think that is what I read somewhere in these posts was that it is a good time to switch to Dot 5 when you are doing a resto
Everyone has a different opinion on this! The only times I would really discourage a switch to DOT5 would be: racing - particularly road racing or road course events, if a manufacture says not use it (eg Wilwood) with their products, and with any anti-lock system that doesn't work with it due to the viscosity etc.

Whenever I do a conversion to Discs, I will be sure to research hard on finding the right Proportioning valve and make sure the system locks up correctly.