Should I plug the small hole on the false wall?
YES. We recommend closing off small hole in chamber one. The basket will butt up against it but some water will still enter. Closing off the hole greatly increases the flow into the top of the Media Basket. A dab of silicone will do, or super glue gel a thin piece of plastic. Make sure nothing extend into chamber as this will obstruct the Media Basket.
Water is backing up in the Media Basket, what's up with that?
Do not over fill the Media Basket. Blocking too many holes in the Basket with media bags will reduce passing flow. Use smaller amounts of media. Change filter floss regularly and feed with the filtration pump(s) off as to not suck too much food into the filter floss.