New disk brake pads do take a little while to break in -- about 20-30 good hard stops (you can speed things up by riding around and slamming on the brakes, if you're so inclined!). But if it's a cheapo brake anyway, you might think about putting an Avid BB-7 on there -- all the brake you'll ever need, and you can pick them up for $50 on closeout at pricepoint.com right now.
I'm curious about those bags... I use an Xtracycle, and it seems pretty handy to have one long container on each side, instead of discrete bags. Do they work pretty well for groceries?