"Is a "Contract Cancellation Option Agreement - Refusal" waiving the time frame a person is given after a car purchase, legal in CA?"
Generally if the contract doesn't say you have a right to cancel, you don't. The "3-day cooling off period" for canceling a contract does NOT apply to new or used car purchases. As of July 1, 2006 the "Car Buyers Bill of Rights" offers the "option" of a cooling off period of 2 days for a fee.
"Can a car lot allow an uninsured unlicensed driver, drive off the lot?"
Car dealers aren't responsible for enforcing the CA Vehicle Code.
"Can I get my downpayment back because it was an illegal transaction because I didn't have a license or insurance?"
"I tried to give it back they refuse to take it saying the only way is by repo and they will keep my $2000 and still charge me for the remainder of $10,329, is that true?"
See above. No one on Avvo can guess what your particular contract says, but just because you weren't able to legally drive a car in CA because of no license and no insurance, that doesn't mean the contract is illegal, since you could have been and were apparently buying the car for someone else who was licensed and insured.
Never sign any contract you don't fully understand. See a lawyer for help.
Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.