Optimizing your site for too many keywords is without a doubt counter-productive. Simply because the time spent on all of them could be channeled to keywords that present a good ROI and in the end, are the ones you will get traffic and consequently business from.
Narrow down your keywords that are focused on your product/service, be more specific when using some keywords. Trying for a large keyword range can actually hurt you in your marketing efforts. Target only a few keywords per page on your site. Take the most prominent keyword and or keywords and use them when linking on other sites as your anchor text. More is not always better, its the quality.
I agree, thats when picking various keywords you need to pick ones that are related so that you can optimize several at the same time.
Depends on how large your site it. Focus on the more broad stuff globally. But make sure the on site factors are optimized for the long tail keywords. So you should put some effort into the lesser searched keywords. Do not totally ignore them. But put more effort into the broad golden keywords.