As Wid mentioned, you have your receiver crossover set way to high, try 80hz on the receiver and leave the sub on bypass. I would also set your mains to small on the receiver.
On the volume knob on the sub, there are 4 white marks. There is one at the 9 o'clock position, I keep mine around the one just below that, which is about the 8 o'clock position. Sound like that is where you have yours, which makes sense since your receiver setting for the sub is at -3.5dB. I think mine is about -2dB, but I have a Denon so things will be a little different.
The popping sound confuses me, not sure what that was, the only thing I can think of is that you had the receiver set to 160hz, so you were sending signals to the sub higher than its frequency rating of 100hz. I don't think you can play the 500 to loud, it will play louder than a orchestra in carnegie hall.
Another thing is if you find the Center channel being to quiet during movies, you might want to bump that up a bit, I have mine a few dB's louder than my left/right speakers so I can hear the movie dialog better.
