As far as the cables goes, given that the rear brakes with the really long straddle cable came stock on the bike like that, I kind of figured that that was how it should be. Maybe it isn't, but it surprises me that whatever the manufacturer spec'd would be far from the ideal way to do it. The front brakes are set up with a shorter cable to get the brake arms set up so that they will be about parallel as suggested in this video:
this video (which I think is probably a reasonably trustworthy source) I imagine the differences in the straddle cables makes some difference in how the brakes behave, but I'm not sure what.
Regarding the brake pads, the picture above is a little misleading, and it's a little hard to see exactly how close to the rims the pads are. To clear things up, I measured from pads to rims with a pair of calipers. In the rear, the left pad is 5/32" off the rim and the right pad is 1/8" off the rim. On front, the left pad is 7/64" off the rim and the right is close enough that I couldn't get the calipers in there to measure. So, correct me if I'm wrong, but none of those measurements seem to be particularly far off the rim, especially not as much as 1/2".
Frankly, if you are going to continue to provide vague responses that would be of little help to me or someone else reading this thread with similar problems, I would encourage you not to bother.