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Can you produce articles in spinned format? If yes, then how much does it cost and how readable is the resulting article? Also can you spin on word/phrase/paragraph level?

It might be just a temporary glitch with one of google's datacenters - they don't have all identical data, and the replication sometimes creates such inconsistencies. That might happen more often especially for new domains which have lower priority for replication.

Do the regular stuff - link building, onpage seo, off-page seo, add new content. It will help.

The number of backlinks is just one of the many factors for the ranking. What about the quality? What about the trustworthiness of domains which are linking to your competitors? What about the link age? Also think about anchor texts, ********/nofollow, IP diversity etc.

To settle down this dance you will need more quality links, not just more links. Try also link exchange with some relevant sites.

I agree with Kickflip, that guys is probably using something like senuke himself :)

They can, but they also don't want to throw away baby with the water. Meaning some of their methods might affect regular users as well and they don't want that. Maintaining such balance is an art.