I haven’t looked at it for a while, so I quickly did a rough translation of the relevant passages on textual issues at the 1st and 2nd councils from the Dipavamsa.
19 Sattapaṇṇiguhe ramme therā pañcasatā gaṇi,
In the delightful sattapanni cave the 500 senior monks
Nisinnā pavibhajjiṃsu navaṅgaṃ sathusāsanaṃ.
sat and laid out the ninefold teaching of the Buddha.
20 Sutta geyyaṃ veyyākaraṇaṃ gāthū’dānī’tivuttakaṃ,
Discourses, songs, Q&A, verse, inspired sayings, legends,
Jātaka’bbhutavedallaṃ navaṅgaṃ sathusāsanaṃ.
Birth stories, marvellous tales, and analyses make up the ninefold teaching of the Buddha.
21 Pavibhattā imaṃ therā saddhammaṃ avināsasaṃ,
The senior monks laid it this true teaching without omission
Vaggapaṇṇāsakaṃ nāma saṃyuttaṃ ca nipātakaṃ,
Chapters, “fifties”, that called the “connected” and the [numbered] groups.
Āgama piṭakaṃ nāma akaṃsu suttasammataṃ
The scripture called the canon they made, known as the discourses.
22 Pariyāyadesitañcāpi atho nippariyāya desitaṃ,
That requiring interpretation and the explicit teaching,
Nītathaññeva neyyathaṃ dīpiṃsu suttakovidā.
That with meaning explained and that requiring explanation: the experts in discourses made clear.
71 Mahāsaṅgītikā bhikkhu vilomaṃ akaṃsu sāsanaṃ,
The mendicants of the “Great Recital” created what goes against the teaching
Bhidivā mūlasaṅgahaṃ aññaṃ akaṃsu saṅgahaṃ.
After destroying the original collection they composed another collection.
72 Aññatha saṅgahitaṃ suttaṃ aññatha akariṃsu te,
They composed a different collection of discourses,
Athaṃ dhammañca bhidiṃsu vinaye nikāyesu pañcasu.
And destroyed the teaching and explanation of the discipline and the five nikayas.
73 Pariyāya desitaṃ cāpi atho nippariyāya desitaṃ,
That requiring interpretation and the explicit teaching,
Nītathaṃ ce’va neyyathaṃ ajānivāna bhikkhavo.
That with meaning explained and that requiring explanation: those mendicants did not understand.
74 Aññaṃ sadhāya bhaṇitaṃ aññathaṃ ṭhapayiṃsu te,
What was spoken in one context they placed in another,
Byañjanacchāyāya te bhikkhū bahuṃ athaṃ vināsayuṃ.
Confusing the grammar, those mendicant lost much meaning.
75 Chaḍḍevāna ekadesaṃ suttaṃ vinaya gambhīraṃ,
They misplaced a part of the discourses and the deep discipline,
Patirūpaṃ suttavinayaṃ tañca aññaṃ kariṃsu te.
And composed another counterfeit discourse and discipline.
76 Parivāraṃ athuddhāraṃ abhidhammaṃ chappakaraṇaṃ,
The Parivarą the extract of the meaning, and the six books of the Abhidhamma
Paṭisambhidañca niddesaṃ ekadesañca jātakaṃ,
And the Patisambhida, Niddesa, and a part of the Jātakas
Ettakaṃ vissajjevāna aññāni akariṃsu te.
Having got rid of these they composed others.
77 Nāmaṃ liṅgaṃ parikkhāraṃ ākappakaraṇīyāni ca,
The nouns, genders, [details], and appropriate formalities
Pakatibhāvaṃ jahevā tañca aññaṃ akaṃsu te
in their proper state were abandoned and they composed others.
Clearly. But this was not uncontroversial. The authenticity of the Abhidhamma required a spirited defense in the commentary, so obviously not everyone agreed. The above account of the Mahasanghikas, as I argued in Sects & Sectarianism, is better understood as applying to the Mahasanghika branch in Andhra, and not being a genuine recollection of the Second council at all. If it is accurate, the Mahasanghikas were actually pretty good at text criticism, since the texts they rejected were, in fact, all late.
I think it would have been widely understood that they were unhistorical, until with the passing of time their origins were lost. Surely people knew that the Vimalakirti Sutra was satire.
I don’t even think they were trying to be historical. It’s easy to fake suttas, if that’s what you want to do. Just as a simple example, think of the Heart Sutra. The main body of teaching is pretty similar to the EBTs. If they were really trying to pass it off as an authentic text, why not just have the Buddha speak it at Savatthi and be done with it? But they added an intro and ending that are completely unlike anything in the EBTs, which can only be to emphasize its difference.
Originally they must have. But stories get absorbed in a community; they would have been told as stories long before they were formally cast as Jatakas. But the doctrine came to be accepted that the hero of all tales was, in fact, the Bodhisattva, so anything could be included.
Hard to say, but I’m guessing yes. The Buddhist community was far from unified, and it was also far from being uncritical. I’m guessing the more intelligent monks, then as now, pretty much ignored the Jatakas and focused on the doctrines.