Do I need anything other than Flash?
You already have everything you need to get started. I personally prefer working with
FlashDevelop because it's nicer to code in, but it definitely is not necessary. You can use FlashDevelop together with the Flash IDE so it's worth giving it a look. If you're after libraries, there aren't any specific 'must-have's but there are plenty of very useful libs. Take a look
here (They're mostly for AS3).
Which Actionscript should I use?
If you're already familiar with Java, AS3 will be a much easier transition than AS2 simply because the syntax is quite similar. AS2 may be easier to get up and running quickly, but its worth learning AS3 for all the benefits it provides. It is far far faster than AS2, it supports object oriented programming (like Java) and has a wider range of libraries.
How well does Flash work with bigger projects?
Have a look at what the
ffilmation engine is capable of. This demo is a great-looking, large and complex flash game that loads it's assets externally.
Is it worth it to learn Actionscript?
The major benefits of Flash over GameMaker would be the ease of distribution, and the potential to enter the commercial flash game market. Otherwise what both can achieve would be reasonably similar. I think it is safe to say that you wouldn't be limited by creating games in Flash.
I wouldn't consider AS3 a 'transition' language from GML to Java because all three really are very different. The most important part of Flash is how it handles the rendering and this differs greatly from how GameMaker and Java handle it. Otherwise, AS3 isn't a bad way to be introduced to object oriented languages.
In case you're interested, I wrote a basic tutorial for AS3 using FlashDevelop
here.
Best of luck! Feel free to ask any more Flash related questions 'round here. There seems to be quite a few flash coders now.