Can this also be translated as 'you are eating apples' or is it necessary to use 'ag ithe' for a translation of that sentence?
You would need to say Tá tú ag ithe úll. Yes, úll--the genitive plural form. You would really be saying something like "You are at (the) eating of apples" That "of" means that what looks like a normal object is a genitive object after the "ag+verbal noun" construction, and is probably why it hasn't been brought up in the lessons yet. :-)
Though, to be fair, the only time the genitive plural is used in that case among native speakers is older ones or fossilized phrases. Most just tend to use the plural nowadays.
Here is a question concerning the way to pronounce "th" in itheann. In other occurrences I'd heard it like a 'h', and it is also possible to utter it as a German "-ch/-g" like here, am I right?
Yes. It's generally /h/, but in Connemara it's /x/ in ith (the German "-ch").