My set up is currently only running 5.1 and has no problems. The layout of my living room makes it difficult to use all 7 speakers. If you choose this system and hook in the Audessy michrophone, it will realize only 5.1 are connected.
Yes, it comes with everything you see in the picture on the product page. Which includes 4 satellites, 2 front, 1 center, a powered subwoofer and the receiver. If you do plan on purchasing this I would recommend some better speaker wire, the kit only comes with 24 gauge.
This model does not have a powered zone 2. Look at the 7400 or higher system for that added functionality. Not sure if they provide for a separate source for the second zone or not, so research carefully prior to your purchase...best of luck on what ever system you purchase.
I suggest you refer to the manual, especially pages 27-31: http://www.intl.onkyo.com/downloads/manuals/pdf/ht-r590_manual_e.pdf for the manufacturer's explanation.
The "Dolby Pro Logic IIz Height" mode is only available when you have manually selected the front-high speaker option on the receiver's set-up menu and in this mode the surround back speakers are not supported (according to the manual). It appears this means that the surround side speakers remain active and the system operates in the 5.1 mode with an additional signal to the front-high speakers. This mode is primarily designed for games where a front-high signal is provided and may result in odd surround effects if the "Pro Logic Height" mode is used with conventional sources. The conventional "Pro Logic II" or "Pro Logic IIx" modes can be accessed through the remote but it will of course be 5.1 surround.
Not sure how you would correct this? not having witnessed this myself. If I understand you get video sometimes but it drops in and out. Help understand more and I can look at my unit and try to imitate your problems.. Brian