How to proceed when you have a marinade of beef in spices, tomato, vinegar and onion?
tl;dr there is more than one way to cook food, it sounds like you're used to a specifc pattern, but it's not the only one. I'd personally encourage you to try the recipe as-is before you leap to judgment.

(1) It says sauté, not fry, and that will work fine. You should probably shake off excess marinade, and avoid crowding the pan too much. The water will boil and spatter, but the meat will cook and brown. This will be easier if you use the right amount of liquid, though. I see that you reduced the amount of vinegar. You should probably have stuck to the recipe, or replaced the vinegar with water if you wanted to reduce the vinegar flavor.

(2) Sure, you can use tomato sauce/paste in a marinade if you want. It'll impart a bit of tomato flavor to the meat, maybe. The recipe also isn't 100% clear, but does later say "add the reserved masala water", so I think it's also having you use the marinade as the sauce, and the tomato will certainly be obvious enough there.

(3) Yes, you can also use raw onions in marinades. Same note here about how it appears it also ultimately gets cooked into the dish.

(4) It's hard to answer, because I don't really understand why you think this would ruin the dish. The meat has some raw tomato and onion in a marinade, then it gets cooked. You also put raw tomato and onion into the dish, and then cook them. Everything ends up cooked. Not fried, but frying is not the only way to cook food.

(5) I mean, you could do that, and it'd probably be good too, but that's not what this recipe says to do, so it'd be a somewhat different dish. One of the main characteristics of this recipe is that it produces a smooth sauce, with all the flavors blended together: all the spices, the tomato, the onion, everything. There are no noticeable pieces of onion (or garlic or ginger), but the flavor's in it.

(and as for marinades tenderizing things - that's not always the point, not all meat really needs it, but tenderizing also doesn't really mean the meat will be incredibly soft while still raw, just that it'll be more tender and easy to bite/chew)