I'll start by answering your questions, and then I'll give a detailed example of how patch() and setUp() interact.

1. I don't think it looks right, see my answer to question #3 in this list for details.
2. Yes, the actual call to patch looks like it should mock the object you want.
3. No, you almost never want to use the @patch() decorator on setUp(). You got lucky, because the object is created in setUp() and never gets created during the test method.
4. I don't know of any way to make a mock object raise an exception without importing that exception into your test case file.
5. I don't see any need for patch.object() here. It just lets you patch attributes of an object instead of specifying the target as a string.

To expand on my answer to question #3, the problem is that the patch() decorator only applies while the decorated function is running. As soon as setUp() returns, the patch is removed. In your case, that works, but I bet it would confuse someone looking at this test. If you really only want the patch to happen during setUp(), I would suggest using the with statement to make it obvious that the patch is going to be removed.

The following example has two test cases. TestPatchAsDecorator shows that decorating the class will apply the patch during the test method, but not during setUp(). TestPatchInSetUp shows how you can apply the patch so that it's in place during both setUp() and the test method. Calling self.addCleanUp() makes sure that the patch will be removed during tearDown().

import unittest
from mock import patch


@patch('__builtin__.sum', return_value=99)
class TestPatchAsDecorator(unittest.TestCase):
    def setUp(self):
        s = sum([1, 2, 3])

        self.assertEqual(6, s)

    def test_sum(self, mock_sum):
        s1 = sum([1, 2, 3])
        mock_sum.return_value = 42
        s2 = sum([1, 2, 3])

        self.assertEqual(99, s1)
        self.assertEqual(42, s2)


class TestPatchInSetUp(unittest.TestCase):
    def setUp(self):
        patcher = patch('__builtin__.sum', return_value=99)
        self.mock_sum = patcher.start()
        self.addCleanup(patcher.stop)

        s = sum([1, 2, 3])

        self.assertEqual(99, s)

    def test_sum(self):
        s1 = sum([1, 2, 3])
        self.mock_sum.return_value = 42
        s2 = sum([1, 2, 3])

        self.assertEqual(99, s1)
        self.assertEqual(42, s2)