I just came back from a funeral mass. I have a few questions...
1. Where's the incense? I swear, y'all used incense when I was little, even if it was so little I could barely smell it.
Trevor, the incense, in Vatican II is used in certain Holy Days of Obligation - primarily Christmas and Easter. I don't know why they cut it back so much - probably because the Liturgy within the Mass is only a third of what it once was. If you will notice that the Western Rite does not have an Iconostasis, and there is heavy emphasis on the alter (it is turned to face the people instead of the Crucifix) - the statues of veneration if there are any, any longer within the church (the older churches usually have statues, the newer churches often do not or have very few.) are toward the back of the church - so it isn't nearly as 'feasible' to 'Cense' the Saints of God. So, basically, it just doesn't work as well in the format of how things are today. I don't know if your Grandmother took you for the Christmas and Easter Masses, but this is usually where you will find incense now. . .and it's been that way since I was a little girl.
2. The wine used for communion wasn't red, but pink-ish. Do they dilute the wine, and then mix it with water?
Yes, it is mixed with water. It's not boiling like ours is, but the water is used to wash the Priests hands and then, from the same flask, added to the wine because when Jesus was speared both water and blood poured from his side.
3. Why did only the priest partake of the wine, and the faithful only received "host"?
When I was a little girl, I only received the host - when I asked the same question as you asked above - I was told that not only does the Priest represent Christ, the High Priest, but also stands in the gap for the people. (So the priests received the blood on behalf of the people.) It was decided that the body and the blood cannot be separated (this is childhood teaching, so I couldn't reference this unless I did some pretty hefty research, I'm sure.) and therefore the people were actually receiving both 'species'. I didn't like the answer. . . I think I was ten. It seemed to me that it was man messing with what God put forth as most-sacred. When I was a teen ager, the RC started listening to some of the complaints of the people, and this was one of them. . . so they began to offer both the host and the cup. . .then the Aids outbreak hit the scene, and they either went back to only offering the host or offering the host 'dipped' into the chalice. Now, they do what ever . . . their parish happens to be doing. I've seen all three depending on what church I happen to have been in.
Another thing that changed was that the RC used to fast before Holy Communion just like we do. That changed when the change in the wine was reintroduced. It went from receiving the host on your knees and the priest placing it on your tongue while a paten was placed under the chin to standing before the priest and having the host placed in your hands. Then there were laymen ministers added to help with distributing the host to the parish in and outside of church (I was one of these.) So. . .every twenty years or so. . .a pretty significant change happened.
4. Why do you sit during the Gospel reading, yet you stand for hymns? Not to sounds standoff-ish, this just really surprised me. I fealt like sitting in the comfy pew while the Gospel was being read was somehow disrespectful.
We always stood for the Gospel Reading, and sat for the homily. I've never experienced this - so I cannot even begin to fathom why this would happen. This sounds very protestant to me. Maybe this is the most recent change to take effect?
5. The person for whom the funeral mass was for was my grandmother. She was cremated. I thought that the Roman Catholics didn't do cremation?
I was raised that cremation was not an option, BUT the CULTURE of the current Roman Catholic is very different. . .please remember that the church memberships are often HUGE compared to ours. The teaching often has many holes. . . I was a cradle Catholic. . . .and was a precocious child - always asking questions. . .that no one seemed to know the answers to. Even when I asked the priests and the nuns. . . they just didn't know or thought it prudent not to teach. My uncle - a priest, told me that I would have to become a priest to know the questions I was asking (interestingly enough - the same questions I've always asked. . .the same questions I've found answers to quite easily in the OC.). . .well. . . that's a shot in the foot on THAT one. So, please understand, the Orthodox, even as an inquirer is far more educated on the history and reasoning of the church than a lot of RC. Culturally, the Bible isn't read - or wasn't. . .that may have changed, now - I was a goof ball when I was 'caught' reading mine. If I as a parent fail to teach my children something - then I am less likely to discipline as harshly when it's time to discipline. It's my fault, not theirs. . . I think sometimes the Catholic Church takes (understandably) the same stance. So while cremation may not have been allowed, it may have been permitted for the sake of the family and soul of your Grandmother.
6. Why was it ok for a parishioner (a woman, no less) to touch the altar? Are people allowed to just approach and touch it when preforming some liturgical function (I think she was bringing the priest the "host" (wafers))
This is another thing that came along right about the time the change in how the host was handled. . .they wanted God to be 'touchable'. . . loveable. . . there was a significant problem in 'perceived' in the RC called 'Catholic Guilt', and they wanted to help the people understand that God LOVES them, and really wasn't the hammer in the sky ready to strike at any moment. But, I think they kind of threw the baby out with the bathwater - taking on the Love of God without holding in tact the Majesty of God. Again, a move more toward Protestantism. Seemed like the RC was trying to repent for its sins in a way that was a little lost. . .I know that also during this time the sins of the Holocaust came out and were acknowledged and repented for. So, it was an incorrect. . . correction of sorts. (Ah, we are so lost, aren't we? It's so hard to really hit that mark. . .all of us.)
So, they wanted to make Him approachable. . .and in that the alter became 'touchable'.
7. Lastly, why do you no longer respond with "and also with you", but now use "and with your spirit"? Going East, are we? I don't blame you 
Maybe!

I know that my mother called me about the current changes that are being made. Seems the current Pope is trying very hard to work on reconciliation . . . and to keep the Eastern Catholics from feeling like they are isolated. She seemed to think that they would all be Orthodox before the end of the century - and wanted to know what changes she would have to make. . . I just told her. . ."You'll just get to love God even more, because you'll have all of church history, traditions and all who have gone before you to help you." She told me that was what she was going to tell her friends.
I don't mean any of this to start an argument. This is not the place for such a thread. I am seriously curious, as I remember the Catholic Church as doing things differently (but, then again, that was 4 years ago...).

Just pray for us all. Maybe Rome will come back to true communion, yet.
EDIT: I just want to say: One thing I thought was interesting was that, were this 5 months ago, I might of felt more at home at this mass. I'm happy to report that I felt like an Orthodox Christian in a Roman Catholic Church 