Tonhel - brief answers to your questions to avoid quoting everything!

Caballeros, caballeros hidalgos and caballeros villanos are all various labels for knights that I used for game purposes in the El Cid WAB book. They’re not exact historical terms. From memory, the term caballeros villanos appears later on during the Reconquista from when the Christian kingdoms needed more knights to defend the conquered territories - social mobility produced by practical necessity, if you like. Therefore I felt that caballeros villanos could well be ‘nouveau riche’ and might not have all the equipment and training that you might associate with knights drawn from the established hidalgo noble families.
As regards basing, I would never recommend that you base figures especially for one rules system (especially if that system has some unusual conventions). You can play Midgard with any figures as long as they can fit on a movement tray (and yes, 120 x 100 mm is likely to stay as a standard cavalry unit, but that’s just a recommendation, not a rule). I would recommend that you base cavalry on 25x50mm pill/ oval/ rectangular bases as that’s pretty much standard for most systems and then just use movement trays for any unit games you wish to play.
Cheers!