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Q: I'm in a heavy metal band, so a normal kazoo sound won't fit in. Can this be hooked into a distortion pedal?

Yes, and this sounds like one interesting metal band.

Q: On a scale of 1-10 how annoying is this in the hands of a 5 year old?

Depends if your 5 year old has a sense of pitch or not. If so, a 6 or so, and if not, then I'd say prepare for a solid 10. Especially considering how distorted and obnoxious the tone of this particular kazoo is.

Q: Does this work like a normal kazoo when disconnected?

Yes, but it sounds terrible anyway.

Q: Why is this priced above msrp?

Because the level of demand has exceeded supply, with respect to the MSRP, and so when you overlay the demand curve atop the supply curve--on a 2-D graph, where the y-axis represents price and the x-axis represents quantity--the value on the y-axis, at the level of the supply and demand vectors' intersection (assumingely hodling quantity constant at 1 (electric kazoo), in order to avoid any overcomplication of this simplified explanation, by introducing the effects of scale economies) reflects the price at which the item can be sold -- as opposed to a non-arbitrary MSRP, which is simply a guideline for resellers that's set by assuming at what price consumers will buy an item/electric kazoo. In other words, as said in another response, "because some people will pay it." That reflects a shift of the demand vector such that the intersection of supply and demand corresponds to a different, higher, y-axis (price) value, as compared to what the manufacturer had calculated, when setting the MSRP. Hope this helps!