12Th St. That was a possible scenario. Tony was strictly on a tribute set up unlike most other made guys in Chicago who are more in a real partnership set up. Tony ran his street crew anyway he wanted and just gave some kind of reasonable tribute to Lombardo. This is what happens when you lose control over your men.
I don't think Lombardo would have been killed if he were not in Prison. It's very difficult and political to kill a Boss in Chicago.

No, what would have happened is that Lombardo would have had a meeting with Tony and his brother, and at the meeting, Lombardo and some other men would have killed both of them.
This is just hypothetical but my opinion.