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Almost always. Getting a SIM in European countries shouldn't be too hard, as there's usually an airport kiosk or something of the sort that sells SIM cards. If not, just pop over to your city's local mall or shopping street and there's bound to be a carrier store (Orange, Vodafone, T-Mobile, etc). The rates offered by the local SIMs is usually a tenth or less of the cost of roaming. Definitely your best option for data. If you don't feel like bothering, aren't going to use much data, or have a lot of money to spare, AT&T offers data packages for something like $50/100MB internationally. Take a look at http://prepaidwithdata.wikia.com/wiki/Prepaid_SIM_with_data for more info on local carriers.
Yes, but that's not hard to do. If you currently have an smartphone on a GSM carrier (AT&T or T-Mobile) you may well be able to get your phone unlocked. You might be able to do the same if you have a "world phone" on Sprint or Verizon. If you're in good standing with the carrier, tell them you're travelling internationally and would like to get your phone unlocked. If that's not an option, you can buy unlock codes for phones (just Google your phone model unlock). You can usually buy a phone's unlock code for $20-$50.
Not necessarily. Most Android phones running 2.3 "Gingerbread" or newer have a wi-fi hotspot function. If you have one, unlock it, and you've got a Mifi. iPhones also have this feature, but AT&T has disabled it. If you're into jailbreaking, you can re-enable it that way through the Cydia store. There's also a company out there named Xcom Global that rents Mifis with SIMs preinstalled for $14.95/day. A bit more expensive, but in between the cost of buying a SIM and roaming.