You are correct. Nowadays, "lousy" almost never refers to actual lice. In your sentence, "pretty" is a mostly colloquial American term meaning "rather".

Lousy generally is used to mean bad. You will occasionally encounter the phrase "lousy with sth". That means there is a lot of something (usually bad), like an infestation. Ex: "The time I visited, Prague was lousy with drunken tourists."

Yes, you are correct.