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Are references automatically updated whenever the refered/referer post title changes?

Yes, since the title of the post is read dynamically when it is shown.

What happens if I delete a post to which there are references?

All links will be removed from the referer posts, but their text (possibly the title of the removed post) will remain unchanged.

What happens if I set a reference to a draft/pending/private post?

No links will be shown on the referer posts (just possibly the title of the hidden post) until it is made public. The hidden post will also not appear at the back links list from other posts. The same happens if you set a reference to a published post and then you hide it.

What happens if I change a slug which is being referred to?

Because of the way WordPress handles slugs, if you reference posts by slug all references to it would be broken. You need to rename slugs with the tool "slug rename" at the plugin settings page (Admin panel / Settings / Cross-References).

After upgrading this plugin from v1.2 to 1.3 I get a fatal error

If you get an error such as: Fatal error: Cannot redeclare cref_setup() (previously declared in [...]/wp-content/plugins/cross-references-plugin/crossreferences.php:227) in [...]/wp-content/plugins/crossreferences.php on line 95 you need to remove the file /wp-content/plugins/crossreferences.php, which is the old plugin v1.2.

Is this plugin compatible with the multilanguage plugin qTranslate?

Yes. At the plugin settings page just write for example:

<h1>[lang_es]Entradas Relacionadas: [/lang_es][lang_en]Related Posts: [/lang_en]</h1>

Known issues with other plugins

"HeadSpace2" Plugin - In cross-references v. 1.3 until 1.4.01 there was a bug. This bug could have caused problems with other plugins that change post titles, too. Please update to cross-references v. 1.4.02 or above or downgrade to v. 1.2 to avoid this problems.

"Raw HTML" Plugin - [cref ...] tags will not work when placed into a block <!--start_raw--> ... [cref ...] ...<!--end_raw-->. This is because of the way the Raw HTML plugin works. It overwrites the content in raw-blocks after all content filters apply with the original contents. Workaround: <!--start_raw--> ... <!--end_raw-->[cref ..]<!--start_raw--> ... <!--end_raw-->.