1. Yeah I know the documentation isn't all there. It's coming in the next update however.
2. Don't use XBMC integration until you can get things going on the PC client alone. The reason for this is so you can monitor and detect if there's a problem. The XBMC support is VERY primitive. The reason you see all those games you don't own is just an example of how primitive it is
Avalaunch has slightly better support, but neither is 100% at this stage.
3. Yes you can play games running off your HDD.
I'm not so sure that your setup is going to work. If the device that the PC sends packets ot the XBox on is a wireless device, it's not gonna work. This is not something on our part, but on the WinPCap libraries.
Either way, here's what you would normally do...
Put systme-link game in XBox. Go to system-link menu. Search for games. Leave the XBox to search for games. Run Kai on PC. Log-in. Click the magnifying glass 'performance'. Confirm it gives the MAC address of your XBox along with the message 'MS XBox Auto-COnfigured Successfully'.
Talk to guys in the Outrun 2 arena. Ask them if they see your ping. If they do, you're all good to go.