1) I went 2 years ago on 2nd day of Eid. I stuck in traffic near mansehra and again between Kaghan and Naran. Hotels will be costlier than usual. Naran bazar will be jam pack. You will find rush at hotel counters, the person at reception will be handling phone + 2,3 customers at the same time, will be very busy, negotiation on rent will be hard. In such situations, I would advise to book in advance, because it will not be suitable to first find parking space in bazar, leave family in car and search and negotiate for hotels. Try to reach there before in daylight. For good hotels, search other threads or search for Parhena Cottages, deManche, Arcadian etc etc.
2) Vitz can easily go there. I have seen many many 660cc Autos go there till Naran bazar. Any car in good engine condition can go. If you have problems like weak tyres, breaks, radiator leaks etc etc, you must fix them first.
Since, it will be jam packed, so you will need to bear with slow response from food stalls, hotel reception and somewhat agree to the jeep wala timings and rates.