Chain = Ibanez JS1200CA guitar -> Stereo Tube preamp -> Soundcard line in -> Guitar Rig3 - > Mixcraft 3
I don't really have a Vai sound setup or try to nail any specific tones by any players. That's way too much work and I'm really lazy.

I just let my feelings for a tune flow and whatever comes out, comes out.
I use the same guitar rig preset that I use for most all my stuff. I think the vibe of any players tone is more in the players hands than the gear. Just my .02 on getting players sounds.
Notes on the gear chain above. I have a guitar that I set up as a low B guitar starting with a .060 string it is tuned, BEADGB. That guitar only does the background rythym/chunk stuff.
The Ibanez JS1200CA guitar does all the lead work. Note that this is a Satriani artist model, not a JEM like mr Vai plays. They are way different.
Guitar Rig lets you set up a bazillion presets with tons of different amps, effects. I used 3 different presets on the tune above.
XLR, ya caught me, I had a Master limiter set on the tracks that had a huge dynamic range in order to keep them in line.
True, not sure about the horsie thing. We would have to ask mister Vai. if i ever find out, I'll give you the low down.
I like your second idea about the bad horse. Probably bites the owner and shits in his hat.