If the pipe is in good enough shape you can weld over the hole, BUT If there is one small hole rusted in the system it is a good sign the pipe is rotted. There will be many other holes soon. There are probably more holes than you know about. You will probably have to have an exhaust shop put in a new pipe for you.
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You have exhaust leak where the pipe rusted through and this makes the loud noise. You can go to a parts store and get a exhaust repair kit to fix the hole. This is only a temporary fix and might not be enough to fix the repair. Otherwise, you have to go to a muffler shop so they can replace the rusted section.
That's exactly what it is, water. The products of combustion are water and carbon dioxide. While the exhaust stays hot the water comes out as high temperature steam, usually you don't even notice it. When the exhaust pipe and/or outside temperature is cold enough the exhaust will cool and some of the water vapor will condense into steam and possibly even water that drips from a weep hole in the muffler. If you're seeing a little water drip from the muffler, everything is working as designed.
No, it will just make the car loud.
just if your worried buy a new muffler. but i would say not to bad. it will dry up. It really depends how much water you are talking about. Was water placed into the muffler say during a car wash? Or could it be coolant from a blown head gasket? Most modern mufflers actually create water through a chemical reaction. So if you are seeing a little drip out of the drain hole you are probably ok.
About 20 dollars! Hey oh!