If you're using DNN 4.6 and up then you don't need to modify DNN at all. If you write your own authentication provider that pulls the UN/PW from your datasource then you'll just have to plug it into DNN.

I'd take a look at the current authentication providers to see which one you can use as a template. I'd think that the AD Provider is probably the closest one but there's a lot that goes on in the background that you won't need. It should give you an idea though.

Well it depends on how you're going to going to use it. If you're going to use the 3rd party database only to authenticate against (ie: not add users who register on your DNN site into the external database) then you don't need to add users/update users on the external database. If you're going to want new users who register on your DNN site to also be added to the external database then yes you do have to work out a procedure to add/update users.

Unfortunately there isn't a walk-through posted though it is on my list of things to do. However I did see a post in another thread this morning that had links to blog entry on doing one: http://www.engagesoftware.com/Blog/EntryID/75.aspx (I haven't looked at this particular link but if the previous blog it refers to is the one I'm thinking about then some changes would have to be made for DNN 4.6 and up). There was also a link to an external database authentication package that's available for purchase (http://www.iowacomputergurus.com/products/custom-authentication-provider.aspx).