Here are links that pretty much answers all the questions above:
http://www.jarnaginco.com/reenactor%20leather%20care%20article.pdf
http://www.jarnaginco.com/leather%20preservation.htm
Summary
Too much oil is bad, too little is bad. As for rancidity it remains unanswered for now. Heck I won't worry anymore
Neatsfoot oil rotting thread is a myth. Quote:"The problem of thread rot is not the oil itself but the moisture
trapped in the leather by the “over use” of the oil. The fact is, leather must breath. As air
humidity rises and falls leather constantly takes up and loses moisture. As one adds
excessive oil leather will loose its ability to breath until it gets so much oil that moisture
is virtually trapped. Bacterial action from debris and the trapped moisture is what rots the
thread."
"Only natural products are therefore recommended.
Those containing natural and authentic ingredients such as tallow, Cod oil,
lanolin, lard and of course, neat’s foot oil are best. If you use neat’s-foot oil be
sure to use “pure” neat’s-foot oil rather than “neat’s foot oil compound” which
contains mineral oil. Immediately after removing the excess oil apply a coating
of warm tallow or other animal grease. Gently rub into the leather with a
woolen cloth. Let stand for a few hours then wipe off the excess."
