I see no way of differentiating between "er isst" and "ihr esst"...
You are right, but by time you can differentiate between i and e
How can you(plural) eat only one strawberry?
I also clearly heard "er ist."
I believe using the 2nd person plural is a form of polite speech when talking to one person, as vous in French or вы in Russian. Please correct me if I'm wrong.
No, the polite form for singular or plural is the 3rd person plural, "Sie". It always has a capital letter :)