Is it safer to buy a puppy from someone who hasn't line-bred i.e. the sire and dam on one side is the same as the grandparents on the other?  I am worried that any 'problems' show up in the liiter...good for the breeder maybe i.e. shows faults etc., but not for the buyer?  Or is it better to go for total outcross or one with distant common relationship?

A total outcross is a complete gamble; reasonably close linebreeding (sire and dam having a couple of mutual grandparents) is usually the safest bet. Though if the two individuals you are concerned about are both excellent healthy specimens the litter could be exceptional.

Depends entirely on the knowledge of the breeder.  If the breeder is going to keep one of the pups, then they also want a pup who is healthy and with no serious breed faults, just like the puppy buyer.
Close breeding only amplifies the faults and virtues that are already there, it doesn't invent problems that the dogs aren't carrying.  I always explain to my puppy buyers what I'm trying to achieve in doing the mating that I've done, whether they are interested or not!! ;)