Welcome to the forum. Some answers to your questions follow:
1. What is the difference between 856 and 857 visa? Is it as simple as - when it is in metropolitan area it is 856 and if it is regional Australia it becomes 857 with less stringent criteria?
DIAC booklet 5 explains the differences quite well.
2. Who decides which visa class needs to be applied for? Me, my new employer or DIAC?
As this is your life I would suggest you decide which visa to apply for.
3. From this forum I have learnt that: Under Migration Law there is NO OBLIGATION for the employee to remain in the employment of the sponsoring employer of 856 visa. Does that apply to 857 as well?
It's not quite that simple but in essence yes, there is no legal obligation for an employee to remain in the employ of a sponsoring employer of an 856 visa. The 857 visa imposes a different set of legal obligations on the visa applicant making it less easy for an employee to leave the sponsoring employer within the first two years.
4. What is the usual processing time for 856/857 visa if I have required educational qualification and IELTS 7 in each of the four bands and 175 visa application already in place since 2 months?
I am not sure of current processing times for these visas - they seem to jump around depending on who you ask.
5. Does Queensland government asks for IELTS score of 8 now a day?
I have no idea - never deal with the Qsld government. Maybe other forum participants can help with the answer.