Sat, first, although this wouldn't affect the localization issue, since your receiver is doing the crossover function the internal sub "crossover"(actually not a full crossover, just a low-pass filter)would just be in the way, so it should be set to bypass.
Localization does increase with the higher crossover settings, so you could try manually setting the surround crossovers to 80Hz.
Next, is the "mucho" bass simply too mucho? Are you using the sub level that Audyssey set or you set with an SPL meter or did you set it higher so that the bass was more prominent? If so, turn the level down. The impression should be that the sub isn't working but that the speakers are putting out more bass.
Then, despite the position chosen by the sub crawl, consider moving the sub farther away from the seats, say in a corner behind one of the mains.
