IPhone – Setting up the family sharing : what will happen to the content previously purchased by the children

iTunes and iPhoto libraries are, unfortunately, built upon databases that are designed for only one user. Apple recommends the following workarounds, each with their own drawbacks:

iTunes music folders can be placed within a central location (such as /Users/Shared). Only the music files themselves should be moved to the new location, not the library files (the files located at /Users/yourusername/Music/iTunes/iTunes Media). You then point each library to this new location (through iTunes > Preferences > Advanced). The big caveat to this approach: when another user on the computer adds music to the library, your library won't automatically see it. You will essentially need to tell iTunes to scan the music folder manually each time for it to pickup the changes. This support article from Apple describes this entire process in great detail.

With iPhoto, Apple technically recommends placing the shared library on an external hard drive, but you should be able to use /Users/Shared as well. Once the iPhoto library has been moved, open each user's iPhoto while holding down the option key. This will cause a pop-up screen to appear where you can select your library's location. The major caveat to this solution: if you switch between user accounts and another user has iPhoto open on their account, iPhoto will prevent you from opening the library. Again, Apple has a nice support article to cover this in great detail.

No. Each family member would have to use purchases in the cloud to download your entire music library.

I know of several people that tried family sharing and I've gone back to one Apple ID because of how well iTunes match works for them. Losing that feature to gain the rest wasn't worth it in the short run.

My gut feeling is that sharing between two adults it's better to stick with one Apple ID and families with small children will prefer a family sharing in the 8.0 incarnation of the feature