When measuring horizontal distance with total station, should the prism and telescope be on the same horizontal plane? What about height difference measurement?

No, the total station automatically calculates, and the distance displayed by the total station can be set. SD is the oblique distance, VD is the horizontal distance, and HD is the height difference. It can be set to display the horizontal distance VD, which is simply a right triangle, and the hypotenuse of SD, VD and HD is two right-angled sides. If these two lenses are kept on the same horizontal line, SD=VD and the oblique distance is equal to the horizontal distance.