1) One thing occurs to me. What mode do you have the SMS-1's input on the 990 set to? You'll need to be in stereo, as bypass will create a scenario similar to what you are describing (it will bypass the crossover, sending a full-range signal to the RF7's).

2) That's probably not an unusual thing to see (my SMS-1 did something similar in auto mode) because of the LFM-1's roll-off. I don't think it's actually dangerous, but it probably wouldn't hurt to turn it down a few dB just to be on the safe side.

3) Others may have some better ideas on this one, because nothing occurs to me except perhaps some room acoustical treatment. Do you have a particularly hard room (hard wood or tile floor, minimal upholstered furniture, few curtains on windows, ...)? If so, the room may be accentuating the "brightness" of the Klipsch's horns - in which case something as simple as an area rug could start to help.