How many fish could i reasonably put in a 125?
Depends on the fish. Damselfish range in size quite a bit. A school of Sergent Majors for instance will be
much smaller then a group of Talbots. The main problem you are gonna run into is aggression, so research and know exactly what damsels you get. Even then you may find it difficult to keep a large group alive long-term. I'd suggest Amblyglyphidodon species. They are medium sized and they school and are pretty calm as far as damsels go. Talbots are pretty peaceful too, but not sure if they'll school. You could do more Chromis' and have a rather large school of those, but the experience I've heard with them is they almost always pick each other off over time.
Do i need all of that live rock, or could i get rid of some of it to have more room for fish?
Again, depends on the fish. Some types of damsels will prefer the rockwork, others the open space. Find out what types you want to keep and them you can base the rock around them. Most likely you will be able to get rid of at least some of it, since that is a bit of rock for FOWLR.
One tip on rock removal since I saw in another thread that you have a Starry Blenny. If you remove any rock, make sure you know where the blenny is. They like to hang out on/in rocks. I killed one a little while back by not realizing that the blenny had ducked into his favorite hiding place (which happened to be a rock that was temporarily removed). Even though he had been chased away from the spot multiple times as other rocks were removed in the area to prevent such an event, it still happened. They can be tricky to deal with when it comes to rock removal.
What about inverts for a Clean up crew? Are they necessary?
They aren't necessary for any tank. You don't seem to have anything that would make their life difficult, so if you like them keep/add them. Otherwise nothing really says they are necessary, just helpful.
What about lighting? I have MH and T5 lighting now, but is it necessary?
As greech said, if you don't have corals or anemones then those lights won't be needed. Keep in mind you may lose a bit of coralline encrustation (if you have it) when/if you cut back the lights.