What would you recommend for writing a book?
Take a PC, use emacs, write in LaTeX. The learning curve is steep, but you get a high-quality layout. For anything larger than an article, "Word" - or leave alone AmiWrite or WordWorth is not exactly suitable.
PasTex on Amiga and an editor like ged might do, but typesetting the book will probably take too long and might be unpractical. AmiWrite and WordWorth are ok for a letter, or something up to 30-50 pages, but beyond that it will get too slow, and have stability problems. I stopped experimenting with these programs a long time ago, switched to LaTeX and never looked back.
Could Page Stream make an online magazine?
Well, it's not exactly an html editor.
If I down loaded a Commodore Free txt file what could one use to turn it into an Amiga Guide file?
A strange question to ask. Take a text editor and insert the links and markups. Then it becomes an AmigaGuide file, but it's not automatic. In the same sense, you can "of course" turn a text file into a web page, you "only" need to insert the html tags. Depending on what you expect as a result, this might be an easy going or an annoyance.
What would be good software to write Interactive Fiction for Amiga 1000 and up?
I would like to have a split screen at top and text at bottom.
Nothing I would know of. There are a couple of professional development systems for the PC that you may use for free if you generate freeware. I do not know whether anyhting like that ever made it to the Amiga.