Hi Stephen,
ECC EHP7 is based on Netweaver 7.4 please check the oss note: 1737650 - EHP7 for SAP ERP 6.0 SP Stacks - Release & Information Note
Yes, you can install remote application server instance to use as shadow instance. SUM guide(https://websmp106.sap-ag.de/~sapidb/011000358700000783082011E/SUM10_Guides.htm) has more details about it. here is the answer to your questions:
1. Not sure how you installed, please check the message server log dev_ms and see if you see any error there. To use instance as shadow instance you can install temporary license using saplicense –temp.
2. From SUM guide : If the shadow instance is not on the same server as the original system, you have to manually start the instance in the START_SHDI_FIRST phase and manually stop it in the STOP_SHDI_LAST phase
3. If you don't have enough hardware capacity on the original upgrade system, you can install shadow instance on another host. you did correctly.
Regards
Prashanth