There has been dozens of threads about this. Just run an advanced search on the forum using something like keyword "tax or taxes or taxpayer". If you have any further questions after reading them, just post them.
To answer your questions:
1. Yes, some people do report it, including myself.
2. You "should" report your activity in the sense that you are required to do so by law. In addition to the potential legal ramifications, you also need to consider the karma consequences of being a cheat and a liar even if you are not caught. Just because you can get away with a crime doesn't make it right to committ one.
3. Gambling gains are normally reported in the income section and then losses netted out as a miscellaneous itemized deduction but can only be deducted to the extent of winnings. The sum of all your winning bets would be gains and the sum of all losing bet would be losses. They are not supposed to reported just Net of each other in the income section. I am certain you will find more detailed instructions in another thread if you run a search. In some circumstances, you could report as a professional and it gets reported differently, but your activity needs to meet certain criteria to qualify and it will not necessarily minimize your tax liability.