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So there are 2 separate questions here, but you mixed them together. It took me a while to realize what you were asking.
Problem 1 = Understanding the difference between a sequential workflow and an iterative workflow. This is your problem regarding the workflow column always saying "complete."
Problem 2 = Understanding why ...
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I gave a link with a full write-up.
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You can't do parameterized queries in 2007 (but you can in 2010), however ,all you need to do is filter the repeating table using conditional formatting that says "if projectID (or projectname or any other unique identifier) from the secondary data connection is not equal to the projectID saved in the form's main data source, then ...
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SPD workflows are not reusable, so there's not a template you can get. If you are a .NET developer and understand the Windows Workflow Foundation, then I'm sure you can find a workflow template to use for building one in Visual Studio. However, if you're not a .NET developer who knows WF and the SharePoint object model, ...
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You can't dynamically assign values in OOTB workflows. You would need to make your own custom workflow with SPD or Visual Studio.
In SharePoint 2010, you will be able to modify OOTB workflows in SPD, which awesome, but we can't do it in 2007.
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I can't help with the code, but at least you know how to separate your dropdowns in the schema.
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How are you doing cascading dropdowns when filtering is not supported in browser forms? Does your filtering actually work in the browser, or have you only tested in preview mode?
For your dropdowns to be independent, they need to exist within the repeating group in your data schema that is being used for the repeating section ...
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It's really a shame that your organization is still using Office 2003. That's your main problem - that is very old technology, and 2010 is already in people's hands. The best thing to do would be to advance to 2007 before that software is obsolete.
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You don't get a red star with data validation - only when checking the "Cannot be blank" box. That's not what I was talking about.
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That should work no problem, so you must have a logic error. I do this frequently where I have custom buttons for submitting, and I either submit + close, or I submit + some other actions + do not close. If it submits, it submits...no other way around it. Doesn't matter if you switch views, it should have submitted the data.