Well, that whole "we've both fooled around so it should be okay" thing concerns me a bit, but that may be a whole 'nother thread.
You said you seem over it. Be sure you are. You don't want to carry any residual crap into a new relationship or even into dating. Makes for a bad combo...
You've asked for a lot of different things here so I hope I can address them all! First of all, it doesn't seem that difficult to me to know when someone is interested in me, but I know that not everyone picks up on it. Pay attention to things like body language, eye contact, his responses to the things you say, etc. If he leans in toward you, smiles and/or laughs at things you say, and is intrigued by your comments, there's a good chance he's interested. You can show your interest in the same ways.
Turning someone down can be tricky and I'll be honest enough to tell you it's not up there on the list of things I do best. That being said, it's best to be honest. If there's no chemistry or attraction, be up front enough to say so. If someone asks you out, you are not obliged to go and if you'd rather not, be tactful and honest, but just say so. Making an excuse or putting him off really isn't fair.
Opening up is really something you'll have to work your way into I think...one of those practice makes perfect things. Begin with conversations and situations that you feel comfortable in. Don't assume that the other person won't like you if you open up or won't be interested in what you have to say. Challenge yourself. Practice putting yourself in situations that usually make you uncomfortable such as parties or being in large groups of people. Repeated exposure will help raise your comfort level.
Hope I've been helpful! :D