Drotar said:
First, if it's an ancient virus, how do we know what it's sequence was?
It is assumed that viruses in distant history had similar sequences to what we find today. Of course, the sequences will be slightly different due to eons of mutation and selection. Also, viral sequences are flanked by tandem repeats, sections of repeating sequence such as AGGCAGGCAGGCAGGC, for example.
If it's around today, how do we know it wasn't independently inserted in "hotspots"?
It would have to have been very lucky and very accurate to become part of the entire human populations genome. Remember, it has to integrate into a germ line cell in order to become part of the genome. If viruses were actively inserting themselves into germ line cells the human genome would be littered with these sequences. If our genomes were 50% primary viral sequence then we could conclude that viral insertions are very common. However, this is not the case. There are, however, remanants of viral code that has been transposed and moved around in the genome. This also helps in tracking phylogenies by comparing the movement of the manipulated viral code as it moves through the genome.
How do we know that it codes for a viral protein? Don't different sequences encode for different things at different loci?
Talked about above. By comparing the sequence of the genes to extant viruses.
Which fossils were they discovered in?
None that I know of. ERV research is done on extant species. They construct cladograms, or trees, that correspond to the viral insertions. These trees match what we find in the fossil record.
And most importantly, is there any citation of evidence of such every possibly being discovered, or may we safely file this under theoretical biology?
We might be able to find ERV in recently extinct species, such as neanderthals or wooly mammoths. This would require extremely well preserved specimens, but could be possible. As an example, they have been able to sequence neanderthal mitochondrial DNA, showing that they are distinctly different from humans in this respect.