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You don’t need lwjgl_applet.jar.pack.lzma in the al_jars parameter as it only contains the GearsApplet, jinput.jar.pack.lzma can also probably be removed since it doesn’t look like you’re using any controllers, unless you’re using any GLU or lwjgl utility classes then lwjgl_util.jar.pack.lzma can also go.
parameter isn't needed as its enabled by default.You seem to have two lwjgl_util_applet.jar,lwjgl_util_applet2.jar jars in the archive tag, you should only need one.
Mass System.out.println()'s every frame doesn’t help performance or framerate 
Further there is a detailed section on the lwjgl wiki on how to reduce the size of LWJGL applets down even more. Its possible to get the overhead down to about 250kb-300kb or less but do keep in mind that its only a one time hit before its cached.
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Don’t know enough about Java2D to comment, but do remember reading that VolatileImages are pretty useless these days since BufferedImages are just as fast now.
It doesn’t, LWJGL is a low level raw library which includes non of the above, you have to manually write those or use some extra library. What you should consider is Slick2D, its a small library on top of LWJGL, it contains all the bells and whistles you require (fonts, image loading, particles effects, etc) plus you’ll feel right at home since your coming from a Java2D background and Slicks API is intentionally very similar.
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