I started in a class of 6 people. We were all absolute beginners. Learning stuff like G, C, D7, and how to tune the guitar was fine but after a few months, you could see some progressing much faster. I only ever had lessons for those three months. I would recommend individual lessons where possible. If you are a metal shredder wannabe you don't want to spend months learning pop songs or the Carpenters, W/E.

Depends on the teacher I guess. A lot of the work and practice happens at home anyway. You do need personalized attention fromt the teacher though. If the teacher can give you a way to make the best out of your time when his attntion is on another student then more students is ok. If more students means you just sit around and wait for your turn, then not really.
In any case I think you can learn from other people's mistakes and being more than in the class can allow for group exercises in synchronisation, harmony etc and that can be good for you.

I would deffinately advise you to take up private lessons. In group classes, things always get slowed down, some are trailing behind on practise while others are waiting for the next technique. It's a very mismashed process. Private lessons are alot more useful - you learn at your own pace and have full attention from the teacher.