Here are my answers to your questions:

1. If a student scores an *N on the first section of the assessment, should the teacher go back and begin with the previous assessment (i.e.:  Starts with Train Combinations so go back to Number Arrangements)?

Yes. Going back to the previous assessment is exactly what you want to do. 
This will help you identify any pre-requisite understandings that the child does not have. 

2. When starting to plan for activities and grouping, should the students be grouped according to their level of performance within the benchmark?  For example:  If a teacher assesses seven students, is it feasible that the teacher would then break those seven students up into 2-3 groups?

Most of the time, the teacher will not need to break the children up into little groups unless she has determined that the children need very different things to move forward. I try to use what I call "expandable tasks" so each child can work with the same tasks but will work with the numbers that are appropriate for them.

So if the children were working with parts of numbers, using toothpicks, for example,  some might be making arrangements of 4 one day and 5 another day; another group might be working with 5s most of the time as well as beginning to work sometimes with 6s as well. I would be interacting with the children differently depending on their level. For example, if a child was an I on 5 and a P on 4, I would ask the following types of questions:  "What parts do you see in this arrangement? Can you find any other arrangements that have the same parts? Can you find any that have different parts?" If a child was "ready to apply" for parts of 5 and almost ready to apply for parts of 6, I would ask the following types of questions: "What parts do you see in this arrangement?" If the child said they saw 2 and 3, I might challenge them by asking, "What if you had 6 toothpicks instead of 5 toothpicks and one part had 3 toothpicks, how many toothpicks would be in the other part?" 

3. Is it reasonable to expect that a teacher would meet with her targeted groups one time a week, possibly two times a week?

I would try to meet with targeted groups three or four times a week but for very short periods of time. I think daily short sessions will be more productive than occasional long lessons.  I would probably do the same set of activities over and over with them. For example, if a group of children needs to learn parts of 4, I would do a couple of minutes of The Tub Game and then a couple of minutes of The Cave Game and a couple of minutes of Number Shapes: On and Off. I would do the same the next day and maybe add in Grab Bag Subtraction to see if they are remembering any of the parts. I would try to keep it simple and short and frequent. 

I hope this helps. Let me know if you have any additional questions. 

Kathy