Indeed, it is just the bayonet that is now useless. Of course, your chap could continue using the rifle as a club.
Onto your second question, section 3.3.1 third paragraph applies. To wit, if you can see part of the figure you are trying to shoot at you do have line of sight. Depending on how many figures are in the way you might choose to count them as Type 1 or 2 cover, thus applying a penalty of -1 or -2 to the attack roll.
Shooting through a group, I would rule, is the same as shooting into one and is covered by section 3.3.3.