1. Is game development a viable career? I have heard from articles (most rather old) that game development careers are pretty terrible working conditions in some big companies -- is this true for most? I understand that there will be crunch times in certain parts of the development cycle, but is 70-80 hours weeks typical at many studios? etc. I have also heard from a friend who has done some internships and other jobs in game development that it is reasonable.
I'm not sure if it's typical, but I've been there before (working roughly 10-12 hours per day, 7 days a week). It's not on paper that you are going to be working 80 hours a week (that's illegal), but I think the company expects you to be available whenever required.
2. (sort of going on the last question) is it a longterm career?
Depends on you. Your life will change over the course of your life. You will form different opinions. It may seem to be an attractive choice for your career now, but your opinion might change down the road. Some people stay, some others left (like me).
3. I understand that the starting salary is below average for a programming job, but I have read somewhere that the salaries for more experienced/senior developers is on par with comparable developers in other programming industries. Is this true?
You can research about salaries at various companies at glassdoor.com.
For example: Senior Software Engineer at EA is averaged at $122K
while at Google, Senior Software Engineer is averaged at $140K
4. Would you recommend I get a masters to try to get a better chance at getting accepted (understanding that it's not a purely game development masters, but a digital media which includes some game development in it -- which could be good or bad depending on how you look at it), or would that be overkill?
I don't know what the general opinion is now, but higher education tend to be looked down upon in the game industry. That's because higher degree means less real-life experience, and more out-of-touch you are with the difficulties and tenacity required to make games. Games aren't made with just ideas and theories, and certainly aren't made by people who can only boast and talk about their degrees. In any projects I have been involved in so far, games by far are the most difficult to carry. Having the experience of completed a game under your belt carries a lot more weight than a master in your title, even though that title says "digital media".
I'm not saying you shouldn't get a master. Like frob was saying, if you want to get a master degree, get it because you want to, not because you want to impress companies, and I'd suggest to get a more traditional title like master in computer science or software engineering, rather than digital media.
As long as you've got solid programming skills and experience, you will get hired no matter what your degree is.