It is not the best time, but it could be worse. Expect everything to shut down during the 24th to 26th, with life returning to almost normal on the 27th. Means you need to find a way to keep yourself amused during that time and have some low expectations regarding any available entertainment. If you can do that you should be fine.
is fine, but with two weeks time I would spend one week in Berlin and split the remaining days between 2 smaller places. Dresden would be nice. Wittenberg is a good idea. Quedlingburg or the Baltic Sea coast can be nice too. You'll need to plan your trip around the holidays though.
Many hostels will be closed over Christmas, ditto for restaurants. You definitely want some plan for what to eat on Christmas. You either find a restaurant that is open during Christmas and reserve yourself a seat months in advance (lots of people dine out with their families on Christmas, those that are open are usually booked solid by September) or stay at a hostel that has a kitchen where you can cook your own meals.