How do indices impact query performance?
It will take marginally longer to generate the plan when there are more indexes to consider, but I doubt the difference would be measurably significant.  The reasons for dropping an index does not list query performance.  On the other hand, in general you shouldn't create indexes unless you know they will be used to make a query more efficient.

From the Oracle Concepts Guide, here are the criteria for creating an index.


  In general, consider creating an index
  on a column in any of the following
  situations:
  
  
  The indexed columns are queried frequently and return a small
  percentage of the total number of rows
  in the table.
  A referential integrity constraint exists on the indexed column or
  columns. The index is a means to avoid
  a full table lock that would otherwise
  be required if you update the parent
  table primary key, merge into the
  parent table, or delete from the
  parent table.
  A unique key constraint will be placed on the table and you want to
  manually specify the index and all
  index options.
  


All indexes will be considered in the sense that all indexes on the tables in the query are examined to determine whether they could be used.  Those that could be are further examined to determine usefulness.