1. Yes, the N deactivates.
2. The lone pair on the N as nucleophile/base plays havoc with the other reagents. The Lewis Acid catalyst prefers the pyridine lone pair to the haloalkane reactant, and when complexed the pyridine is even MORE deactivated. The haloalkane reactant can do SN1/SN2 chemistry with the pyridine to make pyridinium as a side reaction - and the pyridinium is also more deactivated.
There are other strategies to allow pyridine alkylation,