A judge must approve all awards, physical or immaterial, that will carry over to other adventures. That includes XP, so yes, you should get Manzanita to approve the awards.
If your rewards are pretty standard, I think it's okay to assume they'll be approved. To move things along, I recommend that your PCs submit their leveled up characters to the character judges now.
As for leveling up during an adventure, that's completely up to you. I usually say it happens during a significant period of rest. But it's your call.
[sblock=HM's Players, do not read]To answer your other question, I think we'll just have to wing it. Keep them in your adventure thread for a little bit longer (surely they'll need some R&R after the adventure, at least a day?), make the necessary rolls, and play it out.
An easy cop-out is to just hand wave the diseases away. If neither you nor your players are interested in playing it out, then I recommend that route.
I think you should play it out, but ultimately, it's up to you.[/sblock]