Yes, it is legal as it is not a registered part. There have been reports of the lower getting a serial number on the trigger guard now, so be aware of .
Not true at all.
My experience is with SL8-G36 conversion, but the only difference is the physical shape of the parts. The upper is the registered part, and thus legally the firearm in both cases.
Because the upper is the firearm, and the upper always did fire in semi-auto and always will after the conversion, there is no status change from semi to full and back to semi, thus 12.3 can not apply. For 12.3, the firearm must have, at some point after leaving the factory, been able to fire in full auto. The USC conversion, as long as you leave the shelf in the receiver alone and do not change its dimensions cannot fit the full-auto fire-control parts, and nor will a UMP bolt fit into the USC receiver to interact with such fire-control parts. The boys down south with their very strict full-auto rules ("Oh, your SKS is bump-firing because you have not cleaned it? Well sir, I need you to come step into this van. That's right, the van marked BATFA on the side. We just want to talk to you.") do this conversion all the time and don't think twice about it.
Do the conversion. Move all the USC fire-control parts into the UMP. It will not move past the semi setting. If the pictograms for full or burst bother you, erase them with acetone. But what they say and what your firearm can do are very different. I can indicate the settings on my firearm as "Safe" and "Hiroshima", but when I go to the range, a certain city does not receive a nuclear explosion.
And since when has the CFC made or interpreted laws for us? The law states that one cannot have full-auto, or converted auto unless one has the licence for such things. The fact that the CFC has "issues" doesn't mean anything. Playboy has issues, so what? Don't cut the shelf, make sure to move all the fire-control-group parts over to the UMP lower, and enjoy your firearm. And if anyone at the range gives you a hard time about the pictograms, offer to let them shoot the firearm. They will quickly forget all their problems as they welcome the embrace of Heckler & Koch, and quickly notice that the switch only has two settings.