First of all, Welcome!

You are correct - Vito underestimated Sollozzo and the drug deal, which is why he sent Luca to meet with the Tattaglias'. Vito's miscalculation cost the Corleone enforcer, Luca Brasi's life.

What else would Luca have done? He was trying to inflitrate the Tattaglia family. If he came on too strong, he would have tipped his hand. The novel gets into more detail if you care to learn more information.

Sollozzo needed Vito gone because Vito's political contacts (the judges and cops in his back pocket) could crush Sollozzo's drug ring, if Vito were ever to be so inclined. Sollozzo needed the legal protection from Vito even more than needing the $1 million. Remember, Vito was the only Don with such heavy law enforcement and political "friends." With Vito eliminated, the judges would be up for grabs and essentially take bribes from the highest bidder instead of owing their loyalty to Vito.

Also, with Vito gone, Sollozzo saw evidence that Santino wanted the drug deal. Sollozzo (rightly) viewed Santino as weaker than Vito and, thus, easier to control.