I would agree with everything but #5. You can discuss with other managers as they are now your peer group, and would likely have valuable feedback/suggestions. You can avoid talking about specific people, but overall, it's fine to speak with people at your level. I do think that it is better to speak with colleagues outside of the company, or if you have a mentor, speak with them.

It's totally raising the consequences to another level. The pro move in these situations is to CC your boss if you want raise it OR BCC if you don't want to.

@520 I fully agree with you that they shouldn't have done those things. The company however, has entrusted that person to make the decisions that they feel are correct for the business and not OP. They will be evaluated by their superiors and be deemed unworthy if they betray that trust. If OP knows that they problems were never surfaced to upper management, they must already have a connection to upper management. That suggests that upper management doesn't care. This leaves OP in a pretty rough position. OP and his cohort will have to act collectively if they want to take direct action.

I'm also a fan of equal pay for equal work. If the person is good, and they'll want to hire them later, then it makes even more sense to pay them equally since it puts the company in a positive light.