Greetings, Chemical Engineer:
You've already received some good responses here, esp. from Cyrus but because I am who I am, I'll put in my two cents as well:
1. If evolution says that only the best survive, and we humble humans, self-named Homo Sapiens Sapiens, are the most intelligent species on this planet, why aren't we the ONLY species?
We weren't the only species of hominin, up until around 18,000 years ago. For the vast majority of the genus Homo's tenure (1.5 million years or so), there have been multiple species co-existing. That is the norm. So what made the difference? Hard to say, except that Homo sapiens as a species seem to be very, very good at getting rid of competitors. Still, we co-existed alongside Homo neanderthalensis for about 160,000 years. The simple answer is that we just don't know for sure why we're the only ones left.
As Cyrus and others pointed out, the species that survive are the ones best able to adapt to a changing environment. Intelligence doesn't have a whole lot to do with it, up until a point. At a certain point in H. sapien's past, we started being able to control our environment, rather than the other way around. That was a significant turning point in our ability to cope/adapt/thrive on a fickle planet.
Has actual evolution, i.e. the changes accumulating sufficiently to make ANOTHER species, been observed? If so, where? I would think that the smaller the species/the faster time to reproduce, the better chances to actually observe this.
I think you already answered this question in an earlier post. Remember that "species" as a term is an invented concept with discrete boundaries, superimposed onto a natural phenomenon that is fuzzy around the edges, as things tend to be in the biological world.
What you need to do is read a few good books, like Stephen Coyne's Why Evolution is True, Carl Zimmer's Evolution--the Triumph of an Idea, Richard Dawkins' The Ancestor's Tale (well, anything by Dawkins, really. The Blind Watchmaker, River out of Eden, Climbing Mount Improbable) or Prothero's Evolution: What the Fossils Say. Fortey's Life--A Natural History of The First Four Billion Years is also good.