We can answer only one question at a time; so I've edited your question to the analysis of Line 8. As the poem's speaker--someone who has either experienced the death of someone close to him recently or who is at an age when death seems near--ponders death, he considers how no one else on the planet has the same connection as he does with his close family or friends. He enjoys that they allow him to be himself, in a sense performing for them, that they allow him to be the life of the party, cracking inside jokes and basking in the rapport that they all share.
Keeping that unique relationship in mind as you read the poem, consider then the similarities between the glistening of tears and the sparkling of diamonds. From a literal standpoint, after bringing his friends to tears with laughter from his quick wit, the speaker looks at his "audience" and sees the glistening from their tears and earrings. In the context of the poem, though, the figurative connection between tears and diamonds is more significant. Both tears and diamonds are obviously precious to most humans. For the speaker, the tears of laughter are so precious because they illustrate the unique personal bond that he has with those whom he has brought to tears, and of course, diamonds are the most precious of stones. Updike implies that kinship with others (represented by the tears) is as valuable or perhaps more valuable than tangible objects (such as diamonds).