I think you are on the right track in trying to increase the height. I’ve generally found that regardless of the speaker design the farther away it is the less localizable. As for specific placement really the best thing you can do is to experiment with different locations to see what works best for your situation. In my experience no two room/seating arrangements ever seem to work out the same.
Both my home theaters have had curtains but one thing I found was that I prefered to leave the back wall curtains open because I prefer getting the extra higher frequence reflections off the back wall. However, in each case I did have several feet behind my seating so my experience may not translate over to your situation.
Cheers,
Dean
