That's right, faster is not necessarily better when targeting for fat loss.
In order to explain it fully you need to understand muscle energy system but since I don't feel like explaining that I'll just answer your questions and give you a link
1. About 130 for you would be best according to your APMHR
2. You can't do HIIT and stick with the 130hr, it's impossible. Staying at 130 is boring as shit for almost anyone so do your HIIT, you'll only benefit more by having a healthier heart in the end.
3. No you're not burning muscle at 160, you're working muscles and building cardiovascular endurance.
4. Cardio won't effect your muscle gains as much as people seem to think but HIIT isn't regular cardio and could hinder some gains due to the intensity.
The system you're trying to target is the oxidative, it's your primary fuel system and it's what your body is using right now.
http://www.nsbri.org/HumanPhysSpace/...nergetics.html