While talking to my two supervisors about an internal examiner I suggested one chap as the internal examiner - at the time I vaguely remember him as an author of one of the papers I was referencing and he would have a specific interest in the work.

As I am now writing the dissertation, I am doing the lit review and he is pretty much on most of the important papers! He has had no hand in my work at all, but his work does form a basis for my research.

Is this ok do you think? Not a conflict of interest or anything like that?

No that should be fine if he hasn't actually been involved with your work.

Yes, that is common and no it is not a problem. Both my viva examiner's work is discussed in my research. Just make sure you don't make any mistakes in interpreting their work!