Shockfusion is another example of a flash-based UBB, though I don't believe they use UBB.
You can definitely do it, but it's a hell of a hassle ...
Prepare to get REAL friendly with loadVariables. Also, any part of the CGI that returns HTML will boot you out of the Flash.
What do you mean by "how do i create a layer in flash for Dynamic Text?"?
You just put a text object on the layer, switch to the Text Options palette, and make it dynamic text ... and give it a variable name. Or did I misunderstand you?