Trek Calypso Cruiser Repair with Origin 8 Parts

Hi...  I am doing a repair on a Trek Cruiser...

Please take a look at my parts drawing and help me find a good way to repair this bike

The chain kept falling off...  so I investigated.  I see two problems: One, is that the front chain-ring is shark toothed or worn out.  Second is that the "chainring guide" wheel is also worn out.  Origin 8 is the manufacture.

So...  I have a few questions:

1. How did this happen? (besides wear, was the guide arm in the wrong position?)
2. What position is the roller arm suppose to be in?  11 o'clock? 7 o'clock?
3. Does the single chain ring need to have ramps?  Or can I replace it without ramps?

Any ideas?  Email me back at:
ron.grosinger@gmail.com

Thanks