1) You have found the correct source. "דרך ארץ קדמה לתורה", ~~ "Derech eretz should come before Torah." is actually a paraphrase of the line of Medrash you quoted "...קדמה דרך ארץ את התורה..." ("...Derech eretz precedes Torah...")
The Alter from Slobodka (R' Nosson Tzvi Finkel; 1849 - 1927) explains that this Medrash is in fact the source that the concept of good character traits preceded the Torah.
"This is the intent of the Rabbis:
Derech eretz preceded Torah by twenty six generations; for all of
the good character traits and attributes are included in derech
eretz; they were ingrained in human nature and for them there
is no need for the giving of the Torah."
(Or HaTzafun Vol. 1 pg. 175) (its good to read from 173 - 176)
A further proof that the Medrash means to promote good character as preceding the Torah, is to be found in the story that is written right before this passage about the 26 generations. :
paraphrase/summaraize: (Rabbi Yannai asked his guest if he knew any Torah, Mishnah, Gemara, or Aggadah, and found that he did not. R' Yannai then decided to call the man a "dog". The guest retorted that R' Yannai was out of line for saying so. So R' Yannai asked him about his merits? The guest replied that he never responded to an insult with another insult (or never repeated gossip) and that if he ever saw two people fighting, he would make peace between them. R' Yannai then expressed sincere regret for calling him a dog. R' Yannai then proceeded to expound our verse about the path to the tree of life.
(same passage of Vayikra Rabbah 9)
The point is that while it took 26 generations from Adam until Moshe Rabeinu to receive the Torah, Derech Eretz (good character) was taught as the path to the tree of life during Adam's lifetime.
2) Lets's look at examples in the Torah and what scholars have said.
Obviously, a full treatment of exactly when "Derech Eretz" outranks a law in Shulchan Aruch, or vice versa (should they conflict) ; or vs. a D'oraisa or D'rabbanan etc. is beyond the scope of a "MY" post. Still, we can answer the OP's 2nd question by illustrating examples that can promote clarity when accompanied by further study, and a case by case inquiry, directed to one's Rav.
a) "So Moshe went and returned to Yisro, his father-in-law, and said to him, “Let me now go back to my brethren who are in Egypt, and see if they are still alive.” And Yisro said to Moshe, “Go in peace.” (Ex. 4:18)
We see that although Moshe Rabeinu was commanded by Hashem to go back to Egypt and redeem Israel, he had to first stop in by his father-in-law and ask his permission to leave.
Millions of Jews are waiting for Moshiach to redeem them from bondage and suffering. But, what kind of redeemer would Moshe be if he couldn't care less about his father-in-law's feelings?
We see something similar when Eliyahu picked Elisha to follow him as his student. Kings I 19:20 "And he left the oxen and ran after Elijah and said: "Let me, please, kiss my father and my mother, and I will go after you," and he said to him, "Go, return, for what have I done to you?"
So, before listening to the summons of Elijah, go kiss your parents and pay your respects to family (as the next verse shows, he made a "going away" party, before leaving.)
b) Yaakov Avinu married two sisters. The famous question asked in Yeshivah is: "How did Yaakov marry two sisters if the Avos kept the entire Torah before it was given?"
The Lubavitcher Rebbe answers that before Matan Torah, the whole world kept the "Derech Eretz" ideal that one must keep their word. Yaakov Avinu had promised Rachel to marry her. Now, Laban tricked Yaakov, causing him to marry Leah first. That may have made Rachel the second sister forbidden in marriage by the Torah, but Yaakov had an obligation to keep his word and be a mentch. Since the Torah had not really been given yet, keeping it would be described as "chassidus" or above the letter of the law. But, being true to your word and promise was the law. So, he had to marry her too.
But, we see that had a man promised to marry someone after marrying her sister, the Torah's command (not to marry the second sister) would in fact stop him from marrying her nowadays (after the Torah was given) and make it impossible to fulfill his word.
c.) A Rabbi who was once needed to be the 10th man in a minyan for Minchah, asked the Chazon Ish if he should stay for the communal Minchah prayer and help complete the needed ten men, or should he honor his business appointment? He could not be on time for both.
The Chazon Ish replied that it would be much better to allow the minyan and prayer to dissolve than to be late for his agreed appointment, in which he gave his word to be there at a certain time.
3) The OP's third question is even more complicated than it seems.
"Hashem looked into the Torah and created the world." (Bereishis Rabbah 1:1)
If so, how does VaYikra Rabbah say that Derech Eretz (a path to the tree of life) came before the Torah? In order for that tree and path to exist, it needed to be created. Yet, that creation needed the Torah to precede it as a blueprint!
Pirkei Avos itself seems unclear on the subject of which comes first:
"R' Elazar ben Azariah says: If there is no Torah, there is no Derech Eretz; If there is no Derech eretz, there is no Torah." (Pirkei Avos 3:17)
If we understand the above, we can answer the Op's 3d question.
The meaning is that there are two types of Derech Eretz. 1) The fine character traits that were invested into the world and Adam for all people to keep as basic law by their internal moral compass. Then The Torah was Given (In which all previous obligations of Derech Eretz were included AND new levels of Divine Law and new levels of Derech Eretz were made obligatory) 2) Once the Torah was given, we are offered higher insight into even greater and greater levels of Derech Eretz.
So first, is Hashem's will. This is the Torah. It of course contains every idea of Derech Eretz as well. Then Hashem gave the simple obligatory Derech Eretz to Adam. Then the Torah was given to the Jews. Then the Torah inspires us to even higher states of Derech Eretz.
Now if there is no recognition of Torah, man would be without belief in G-d. If so, then even his own moral compass will be misdirected and ignored without basic belief in Hashem and His Torah. BUT, if there is no basic Derech Eretz in a person that makes him act like a decent human being, then one cannot reach the higher level of living by Torah Law; because Torah was not given to animals.
(That last paragraph explains R' Elazar ben Azariah's cryptic saying above.")
Some proof for all this can be found here:
"R' Yochanan Said: Had the Torah not been given, we would have
learned to be modest from cats, to avoid theft from ants, to avoid
promiscuity from doves, and proper marital relations from roosters."
(Talmud, Eiruvin 100b)
"For all precepts that are dependent on logic and intuition of the heart are already binding upon all [humanity] from the day that G-d created man on the earth, upon man and his offspring for all future generations."
(Rabeinu Nissim Gaon's introduction to the Talmud)
"However, upon reflection we will see that character traits and
attributes are an introduction to the Torah and the primary
foundation of the essence of a person, without which a person is
not worthy at all of Torah … This is the intent of the Rabbis:
Derech eretz preceded Torah by twenty six generations, for all of
the good character traits and attributes are included in derech
eretz; they were ingrained in human nature and for them there
is no need for the giving of the Torah. The giving of the Torah
came to build on these [traits and attributes] and to command
him (man) to continue to rise heavenward to ever higher levels
transcending those which are in the realm of derech eretz.
(The Alter from Slobodka (Or HaTzafun Vol. 1 pg. 173 - 176))
"One must first improve one’s own character traits and with that, the
Torah can endure with him because it cannot endure with a person
that doesn’t have good character traits. One cannot learn Torah
first and then acquire good character traits because this is impossible.
Without Torah there is no derech eretz-Meaning that one
who doesn’t know Torah is incomplete in character traits of
derech eretz because a majority of the good character traits
about the ways of the world are in the Torah. For example,
extending loans, severance pay, honest weights and
measures and many others like this. If so, without Torah,
one’s character traits cannot be complete with Derech Eretz."
(Rabeinu Yonah on Pirkei Avos 3:17)
So now the answer to the OP's #3 is obvious. Yes, certain elements of "Derech Eretz" are higher than the basic elements of Derech Eretz (which are certainly obligatory), yet are still very worthy pursuits even if at first they are not taught as fully obligatory. The Torah's full Pirkei Avos, contains much encouragement to increase our Derech eretz, even beyond the letter of the Law.
