I'm gonna start by answering your question #3: yes, when using view models, add Data Annotation validation attributes right on the properties on your view model. As you pointed out, the view models are tied to the UI so they have presentation concerns and the validation is strictly for UI input validation. The validation attributes you apply here will be automatically invoked by the framework and you can check ModelState.IsValid in your controller (which you also pointed out).
In reference to validating objects in your business layer, there are numerous ways to do this. For example you could also use data annotations on your business layer domain model entities as well. You could also use other frameworks like Enterprise Library validation application block, Fluent Validation, etc. But in this case, you're probably going to be making an explicit call to validate your domain objects (and each of these frameworks has their own mechanism for doing so). I'm presuming your mapping between your view models and domain models (probably with something like AutoMapper) given your description above.
Having said all that, in reference to your question #1, I would not switch off model binder validation. Let that performance the validation on your view models as normal. Map your view models to your domain model classes. Then feel free to perform an additional layer of business object validation for your domain model. You may not even doing this validation in the MVC project - this might be encapsulated in a business layer that you have somewhere else in your app.