Your Q1: It is not true that Change in K is equal to work done by conservative forces only. It is true for all forces together. So the theorem first reads:
ΔK = Wc + Wnc. We will call this equ (1)
Wc in equ (1) can also be represented in terms of potential energy: Wc = - ΔU. In this step, you have included the agents exerting the conservative forces into the system. Then our equ (1) becomes:
ΔK + ΔU = Wnc this is equ (2). This is therefore not different from equ 1. In this form, all conservative forces have been included as part of our system. They are now internal forces. This answers your Q2. Answer to Q3 is also already here. Calling work done by a conservative force as the negative of the change in potential energy is merely a matter of including the agent of the force into our system. It is not really necessary to do that. We may even choose to include some external agents exerting a conservative force into our system, and choose not to so include others.
And our system now has a total mechanical energy E = K + U and
ΔE = Wnc
Here is an example: A block hanging from a vertical massless spring. List of forces:
Conservative: gravity, spring
Non-conservative: Friction, drag
Work energy theorem: Consider the block alone as our system. All four forces listed above are external to the system. The theorem (equ (1)) states:
ΔK = Wg + Ws + Wf + Wd.
Subscripts g, s, f, and d stand for gravity, spring, friction and drag respectively. The first two terms on the right in the equation are work by conservative forces. The last two are by non-conservative forces. This is correct. No potential energies are involved here.
Now, think of our system as ball + spring. To do this, we replace the work done by the spring with the corresponding spring potential energy, Ws = - ΔUs, where Us is the potential energy of the spring. Now take that term to the left in our equation and we have:
ΔK + ΔUs = Wg + Wf + Wd. In this situation, the system mechanical energy is K + Us. Gravity is still being considered as an external force.
You can now continue the exercise and include gravity (earth) into our system. Then the same equation becomes:
ΔK + ΔUs + ΔUg = Wf + Wd
Our system mechanical energy is now: K + Us + Ug, and changes in the mechanical energy are because of non-conservative forces only.