If the instrument is capable to play beyond the "allowable range" is there a penalty?

There is no penalty for instruments being able to play additional notes outside of the required range.

In the rules, it states that sheet music is allowed in competition. Does that mean that collapsible (commercial/store bought) music stands can be brought in to hold our music?

Yes, you may bring a music stand.

Would mallets bought at a music store be considered professional instruments?

Yes, mallets bought at a music store (or anyother type of store) would be considered professional instruments and are not permitted under Construction rule 3b.