We are going to use Marvin Signature Ultimate aluminum clad and Marvin Elevate fiberglass clad, all impact rated, and chose to pay quite a bit more not to have vinyl windows. We've had vinyl Milgard windows for 12 years and weren't that impressed with them.

Drywall would not have been inserted into that space nor should it. That only occurs when a replacement window is used and downsized to fit inside those returns. Yes, fill the gaps with low expansion window foam, then install the drywall up against the face. If this is in a tub area, you should consider using a material that is more resistant to moisture than drywall.

Glazing durometer or glazing "gasket". Single pane or double pane window? Regardless, you will need to deglaze the window from the sash/frame, replace the seal, and reinstall the glass.

Arcadia may be priced better.