1. You will need to set it manually in a similar way as pzPublishArtifactWrapper does. I'm not aware of any OOTB way to get a stream or file contents as a string. There's an activity named @baseclass.pxPublishArtifact which does what you're asking, but it has flawed support for the repository API and will cause issues with custom repositories - it might serve as a good reference though.
2. You shouldn't need to set data on pyContents in the pyNewFile extension activity because the file data should be passed in as an activity input.

I hope this answers your question. Let me know if I can be of any additional help.

Thanks,

-Ryan