Thanks for your response shadron. The only quibbles I will make are
1. U-238 is not a fuel itself. It needs to be converted into plutonium which is a fuel. But this is normally done in the reactor itself.
Yes, that's absolutely right. U-238 is not fissile; it won't fission using the slow "thermal" neutrons available in a moderated reactor. It captures the neutrons and transforms (ultimately) into plutonium 239, which is fissile to thermal neutrons. The same applies to thorium, which is transformed into uranium 233, another fissile.
2. Any pre processing needed would have to take precautions as the material is highly radioactive.Wait a few years and it would not be so radioactive, though probably still a lot more than normal fuel.
I presume you mean here processing the liquid fuel to remove the fission products. This is done by an automated chemical processor, using either mechanical processes immune to radioactivity or using shielded computer control. It worked for the Oak Ridge reactor, it should work today. There is no reason to have a human's susceptible flesh dangling over the vat.
Yes, eventually things will breakdown and need repair. That will require technology which can exchange a working plant for a troubled one, and then the problem can be resolved or junked as needed. This is not new.
3. Shielding. Gamma radiation is blocked by heavy elements such as lead.
Gamma rays are blocked by everything but vacuum, proportional to the density, and inverse to the energy (frequency) of the rays. Given 500 kEv gamma rays, the halving layer (HVL) thickness of lead is 4.2 mm (1/8 in); 42 mm (1-2/3 inch) cuts it down by about 1000 times. The halving distance of water is 7.1 cm (3 in, see
http://what-if.xkcd.com/29/), for air is 62 m (200 ft).
4. Shielding against neutrons is hard. It may make the shield radioactive itself. Neutrons are produced when plutonium is used as a fuel. Water can be used as a shield for neutrons.
Same thing that shields gamma shields neutrons, to roughly the same extent; like you say, neutrons have a tendency to "activate" the materials that absorb them. This is at it's worst (from our point of view) in metals (excepting chromium), but atmospheric gases and water don't activate, or rather, they do, but the activations (like O16 going to O17) are stable, not radioactive. One particularly nasty activation is both the sodium and the chlorine in sea salt, which is why the Crossroads target fleet got so thoroughly radioactive.
Neutrons are produced when
anything is used for nuclear fuel. A condition for being a successful nuclear fuel is that when fission occurs, at least two new neutrons are produced, one to replace the absorbed one and one to increase the chain reaction's reach. Fission is a necessary corollary to chain reaction fission, regardless of the fuel. They're also produced by all the easy fusion reactions.
5. Shielding (again) You would probably want to stop more than 50% of the radiation so a thicker shield would be required.
Yes, of course. 5x thickness reduces gamma radiation to 1.3%, 10x to 0.1%, 20x to a factor of 1e-6 and so on.
Thanks. May I add
http://en.wikibooks.org/wiki/Basic_Physics_of_Nuclear_Medicine/Attenuation_of_Gamma-Rays