Mac60, I have an RX-V1400, M60/VP150/QS8/VTF-3R and have encountered almost everything you mention. Don't worry -- you have a great system, but it may take a little tweaking. Here are my comments:
Low bass after YPAO setup: this is often reported. I experienced it. One possible answer is just turn up the bass output a little, on either sub or receiver sub level. YPAO will try to calibrate for flat response, which may be technically right but not to your taste. I usually use the Radio Shack meter and increase sub output about 3 to 4 db above the calibrated flat level.
LFE to both mains and sub: this also sounded better to me, *initially*. However I'm now convinced you don't want that. Bass levels are probably too low for your taste, and it likely sounds better due to bass doubling (redundant LFE to both mains and sub) artificially increasing bass output. You don't want this for several reasons. Set all speakers to "small", bass output to "SWFR", and increase bass output on the sub or receiver level control to your preference. Use the RS meter and receiver test tones and set sub output to about +4db above the other speakers. That's what I often use. Better yet use test tones from a DVD or calibration CD.
Optimizer light stays on after manually changing settings: mine does also; I have no idea why.
Turning sub off for music: personally I think a sub for music is great. I don't agree with "subs are just for HT". If your sub is properly calibrated (which includes reasonable adjustments for your personal taste), it should enhance music without being boomy or artificial.
How to turn off sub for music: I never do this, but go into manual setup, and set sub to "none". Once you get use to the admittedly non-intuitive Yamaha menu system, you can just use the front panel display. You won't need the monitor output on your TV.
No bass if using coax input: Verify you're receiving 5.1 data from the player. A separate indicator for each speaker should lite up on the bottom right corner of the Yamaha display. You can also press the "straight" button on the Yamaha remote, then press the up arrow several times to check the input data characteristics. See the Yamaha manual for details.
Often older CD/DVD players have a menu for enabling "digital output" for both Digital Dolby and DTS. For some odd reason they default to off. Verify your player is sending 5.1 data to the receiver.
Note there's an entirely separate "low bass level" problem if using multichannel analog input, such as SACD or DVD-A. Due to an apparent standardization issue, multichannel SACD/DVD-A can have abnormally weak bass levels. The solution is turn up LFE level +10db on either player output or receiver input.
