Hi,
1. In the production world do engineers and designers actually use component color.
The short answer is Yes. The longer answer is what for and why. It seems in your plug in that you are using colour to show
Assemblies as collections of coloured Components to help group them together. This makes sense to me and I could see it
being quite useful. That being said, it would work quite well with designs that use the same material, say everything is steel.
If I was using multiple materials then it may confuse the issue because while designing many designers will model with the
material if it is available. The reasons for this can be complex and software specific but in the case of fusion I can model
this way and get the software to accurately calculate COG and such things. I suppose really that a Designer is more likely to
care about modelling more accurately with the actual materials. An Engineer is maybe more concerned with how it all fits
together. Different departments have different needs. The Assembler just wants a diagram about how it all fits together and
so Assemblies grouped by colour is very useful. Marketing wants an amazing graphic to put into the marketing material and
so lean more towards full colour by material. It is a tricky question about who exactly would use the functionality you are
creating and why but, I think it would be useful to some.
2. What are the most important factors when choosing a component color (currently you can't, you can only cycle) but I assume
in other software you can
Unless there is a very specific reason, most engineers don't care about what colour it is. I am quite happy designing using either
the default Steel Components which are usually depicted as Grey. I am equally happy designing with the Component Colours turned
on. Where I start getting fancy is when I require specific materials in the design. In this case I tend to leave the default Material
colours.

I can immediately see what I need to know using physical material. For Design and or Display this comes up great when I Render it.
I typically set the physical material as I go so I do not forget to do so after but this is not always the case.
3. Are you expecting to be able to "undo" once a color is set.
If you can set it then I definitely want to be able to Un-set it. People make mistakes, I make lots. If I cannot change it back then I
simply will not use it.
4. Would you want a palette of colors to choose from, for instance if your company always uses red colors for electronics and blue colors
for mechanical components so that all your projects have similar identifiable traits
Flexibility is the key to all tools. Yes I would prefer a pallette.
5. What are your major friction points with component colors currently
I don't think there are any real friction points. You use the tools you have available. If a new tool becomes available then you try it
out, if it is useful and works then you either start using it or keep it in mind when solving a specific problem down the track.
Hope this has helped.
Cheers
Andrew