Depends on the hardness. If full hard, I recommend threadmilling. Medium hard, I'll defer to others, and annealed to low hardness it should work fine. I opted for form tapping a 2-56 hole in 304, in a batch of a few hundred parts; I got three taps to make sure I got through the run, ended up still using the first tap on the next order as well, and it still looks like new.
No, you do not use the same pilot hole diameter. The maker of the tap should tell you the hole diameter and tolerance, and reaming prior to tapping will provide the best results.
A form tapped hole will need a larger hole than a cut tap. Form tapping you are pushing the material to make the minor smaller. There are thread charts just like cut taps that give you different hole diameters for the thread % you want.