I don't consider myself an expert, but I do sharpen my chisels freehand, so I'll try to answer your questions ...
Unless you are starting out with a babana shaped chisel, the quality won't make much difference ... harder steels will hold an edge longer, but softer steels will be easier to generate an edge.
I have no idea how that compares to the grits on my stones ... I use Arkansas oil stones ... but I expect your diamond stones cut quite efficiently.
You do want a polished look ... a mirror polish. But it only needs to be so right at the cutting tip. What you also want is a flat back. The back should be pretty close to flat with a new chisel, so it shouldn't take long to get it flat. In fact you only really need the cutting tip, and the side edges to be flat, it doesn't really matter if there is a tiny hollow in the centre where the factory grind isn't removed.
You will know when you have got it flat when you can see the scratches from the stone going right to the edges (again don't fuss about the scratches going right to the middle). Once you have the scratches going right to the edge, you are done with that stone ... move on to the next, and again you are looking to remove the scratches from the coarse stone, and replace them with "scratches" (in quotes because hopefully they will be very fine and not really look like scratches) from the medium stone ... again once the marks from the coarse stone are removed, you are done with that stone ... move onto the fine stone, and repeat untill all the "scratches" from the medium stone are replaced by the ""scratches"" (extra quotes because the fine stone should give a pretty polished look) from the fine stone ... then you are done with the stones on the back.
Note ... if the chisel starts out reasonable, you may not need the coarse stone on the back at all.
If it was from over lapping the back, then you really over did it ... check by putting a straight-edge on the back of your chisel ... it should be flat. I suspect that you got this skew by over doing it on the bevel, if you weren't holding the chisel straight and over did the grinding on the bevel this will happen ... probably easiest to straighten it up on the grinder, but you got it into that state on the stone, it should be possible to correct it on the stone too.
Hone the bevel in a similar way you did the back ... use the coarse stone first until the scratches go all the across the bevel to the cutting edge. Then pause. Then continue a bit more until you can feel a burr on the backface of the chisel. Once you can feel the burr all the way across the cutting edge ... stop, you are done with that stone ... then go back to the fine stone and flatten that burr off the back edge until it is smooth again (you may now be able to feel the burr on the bevel face again now, but I usually don't worry about that).
Then hone the bevel with the medium stone in the same way. First until you have the "scratches" all the way across the bevel. And then more until you can feel a burr with your finger on the back. Then remove the burr from the back. Sometimes this is clearly just the burr from the coarse stone being rolled over, if so repeat this step to make sure it is this stone producing the burr.
Finally repeat again using the fine stone, the burr may be quite hard to feel because it will hopefully be very small. If in any doubt do it twice. At the end make sure that the burr is removed, always end with a few strokes lapping on the back to finally remove the burr.
If you have a strop now is the time to use it.
When repeat sharpening the chisel next time, you shouldn't have to use the coarse stone at all, and probably start with the fine stone on the back, and the medium and fine stone on the bevel (if you're more efficient at sharpening than me and keep your tools well honed, you really ought to be able to skip the medium stone altogether). The coarse stone will probably only come out if you have dinged the cutting edge, or been very remiss at waiting too long before resharpening.
** I am assuming your stones have similar grits to mine.
You may have been a bit enthusiastic lapping the back of the chisel, but I think the real problem was that you weren't holding the chisel straight while honing the bevel ... some people like to use honing guides to help with this. You probably should have caught this before you got that skew by noticing the asymmetric pattern of scratches growing on the bevel, and unless your chisel was incfredibly blunt to start with you must have kept grinding away much longer than needed.
Keeping the back flat on the stones while honing the back is easy beacuse the back is so large, but it can be quite tricky keeping the bevel flat on the stone while honing the bevel ... making sure you have a good stance at the sharpening station helps a lot with this. If you fail to keep the bevel flat to the stone you will slowly create a convex shape to the bevel, this isn't a disaster by itself, but it can mean that you spend a lot of frustrating time on the fine stone honing the back of the bevel (away from the tip) and not properly honing the bevel at the cutting tip, and it taking forever before you get the burr ... although it can be very hard to feel off the fine stone, make sure you get that burr, then remove it ... I think that is the key.
I'm sure there are others here more experienced than me who can improve my technique, but I hope this long rambling post makes sense and gives you a few pointers.