The first issue seems to have been solved by removing some code changing the labels for the bibliography; for the second issue (the vertical spacing between items) you can use the etoolbox package to patch \thebibliography:
\documentclass{article}
\usepackage{etoolbox}
\patchcmd{\thebibliography}{\leftmargin\labelwidth}{\leftmargin\labelwidth\addtolength\itemsep{\baselineskip}}{}{}
\begin{document}
\begin{thebibliography}{9}
\bibitem{testa} First bibitem.
\bibitem{testb} Second bibitem.
\end{thebibliography}
\end{document}
The code above will work, at least, for the standard classes (article, book, report); instead of \baselineskip you can use any other length (10pt, 1ex, etc.) here:
\addtolength\itemsep{\baselineskip}
An image of the result:

\documentclassto\end{document}. The default for the standard classes is[1], not1., so it's important to know what class you're using. – egreg Mar 19 '13 at 22:52