Water is flowing over the intake tube, is this normal?
Yes! The Media Basket forces water through media, not just up over the top like with the stock setup. It tracks water through a dedicated path which puts needed back pressure on the incoming water. This back pressure allows a certain amount of incoming water into the basket at a time. This amount depends on the type and size of media you choose to put into the basket. The filter has a built in overflow around the intake tube and water spilling over it is nothing to worry about. The filter is still circulating 100% of the water through the basket very quickly.
Can I include a heater inside the Media Basket?
No. This filter is too small to fit a heater.