I've seen a guide that states that when fitting the strut brace the felt faces down towards the road and not up. If so why and does it make a difference which way it goes?

Yes the felt faces the road.

It cannot be fitted the other way as the brace is bent both ends to match the subframe contour.

Reason it has the felt is on some models the underbody plastic covers extend further back beyond where the strut brace sits so it stops any rattles.

HTH

Yep spot on!

Does the lower strut brace fit if you have the metal sump guard already fitted?

Have a look here: S3 upper and lower strutbraces

The picture shows where it sits.

The brace and the metal sump guard use the same bolt holes so I don't suppose you could fit both?

Can't see why not. Assuming the sump guard is smooth, you could attach the strut brace underneath it and use the exiting bolts.