Answer to questions

Q1. 1 second
Q2. XOR
Q3. D3

Q4. This project is one possible solution

The key line is this

unsigned int binaryInput = SW1 + (SW2 << 1);

where SW1 and SW2 are the switches for the least and most significant bits respectively. 

Note the use of << to multiply by 2. A left shift is a cheap operation in computing terms (does not require many CPU cycles).