1. What do you think of the use of the word "literary" to describe a novel--for example, in a query letter? The idea of using it, I suppose, would be to distinguish it from "genre" fiction. Drawbacks would be that it can sound pretentious and perhaps suggests a nonprofit quality. Would it be better to simply present the description and let the reader decide for her/himself?
Literary agents do not find use of the word literary to describe things to be ipso facto pretentious or a suggestion of unprofitablity.
2. How is "yanno" pronounced? Does it rhyme with "guano"?
Ha. No. ya know=yanno. Guano indeed.
3. When an agent sells a book, does she or can she negotiate a publicity budget or any terms relating to publicity?
Only if you are quite famous, or a lot of publishers want you, or you're one of the big authors at the house.