This is an attempt to provide examples and further comments on the nice answer of Jack Huizenga to question 2. I apologize if this attempt is more naive than the question and its previous answers.
Note moreover that the fiber of the usual blowup of W(0,3) at a point L with h^0(L) = 2, is the unique quadric surface in the P^3 containing the canonical curve C, and the two Abel fibers |L| and |K-L| are the systems of divisors cut by the two rulings of that quadric. Thus the two fibers of the “canonical blowup” of W(0,3) over the points L and K-L, correspond to blowing down the fiber of the usual blowup along opposite rulings to obtain two different copies of P^1.
If C is a generic curve of genus 5, the subvariety W(1,4) is just the singular locus of W(0,4). The canonical blowup of W(0,4) is the Abel map C^(4) ≈ G(0,4)-->W(0,4), and the inverse image of W(1,4) is a P^1 bundle over it. In the usual blowup of W(0,4) along W(1,4), the inverse image of each point of W(1,4) is a smooth quadric surface. Thus the usual blowup of W(0,4) along W(1,4), is obtained from the canonical blowup G(0,4) by blowing up further along the inverse image C(1,4) of W(1,4). This situation is just the same as the previous one from genus 4, but with parameters. Equivalently, the canonical blowup of W(0,4) along W(1,4), is again obtained by first performing the usual blowup, and then partially blowing down the exceptional locus, a bundle of quadric surfaces over W(1,4), to obtain a P^1 bundle over W(1,4).
As Jack Huizenga suggested, in general perhaps one obtains the canonical blowup of W(r,d) by repeatedly blowing up in the usual sense along subvarieties W(s,d) with s > r, or their total transforms, and finally blowing down partially once again.