I'd say you got really lucky. You were left with what is IMO one of the best brake systems you can get. Thats what I have (ReadyBrute tow bar with Readybrake braking system), and I wouldn't have anything else. Have used it on two different towed vehicles, it worked (and still works) great.
Now, for your specific questions:
1- is there anything that we need to watch out for with this system? Anything likely to break or malfunction?
Not really, thats one of the great things about this system - its soo simple, there is very little that can break or malfunction with it. The few things that could possibly break one day, you can in many cases get parts from any hardware store and repair yourself. That is, provided it is set up properly to begin with.
One thing that can wear out over time, and eventually need replacing: After many years of use, the 'leash' cable that goes from tow bar actuator to the towed vehicle will get frayed, worn where it goes through the hole on the tow bar. You can order a new (or spare) cable from Readybrake, though, for a very reasonable price. Or, in a pinch, it would be pretty easy to put together a replacement cable from parts you'd find in any hardware store.
2- does it have enough stopping power in the mountains? We will be using the ready brake. Our tow vehicle weighs 4040 lbs.
Yes! I've towed a minivan with ours, the van weighed just over 4500 lbs. Readybrake handled it fine. And, assuming its installed correctly, it will NOT 'drag' the brakes when going downhill like some may suggest. The actuator is designed with enough resistance in it to preven this.
3- anyone using one that old? 2006? They have a lifetime warranty so I assume they are well built?
Don't have one that old, but yes, they are well built.
4- does the type of towing system you install have anything to do with the tail wagging effect I hear so much about and if so is this system prone to contributing to that?
Maybe, but I'd say its pretty rare that the tow bar would cause this. More frequently, alignment issues with the towed vehicle are the cause for this.