@Jason > Please double check that you have installed all the latest driver firmware, updated to the latest software, imported the proper .tsi file, and try going through the Setup Wizard again.
- No this should not happen. It sounds like a Mapping isn't correct and you should be using the "Internal" mixing mode in Traktor.
- These should light up when triggered. Also sounds like a mapping issue possibly.
- I'm not exactly sure about the difference between all the versions or which version you have, but I checked my TSP version 1 and you can change the Cross fader sharpness in the Preferences window, under "Mixer". It has a bar to transfer it from "Smooth" to "Sharp". I'm not sure about the channel faders either though. But hopefully the Pioneer Edition of Traktor has these capabilities in it, just check in the Preferences.
I hope this helps and you're able to resolve the issues with a possible firmware, driver update, or something that was missed. :)