Hi seanandredj
To help get you going, here is a link to a Sound and Vision online article about setting up your speakers for home theatre (includes info on subwoofers):
Sound and Vision article online
The point of setting your speakers to 'small' , even if they are actually 'large' floorstanding models, is useful IF you have a subwoofer. By using the 'small' setting, your main speakers are being held to playing sounds above a certain range of frequences (called a crossover point). I believe on the Onkyo 797 this frequency is around 80Hz but don't quote me on that, i haven't looked it up.. Essentially, your subwoofer will play most of the music/sounds below 80Hz while your floorstanding speakers will play the range of sound above that level (i'm noting that i've left out info on frequency dropoff/rolloff here so no one gets too excited on me).
If you were to leave your Onkyo settings at 'large' then the floorstanding speakers will play their entire range of frequencies which will overlap sound frequencies from your subwoofer. Often the sounds then become what many people describe as mushy or muddy.
However, even though i have read articles and heard opinions on setting your speakers to 'small' and leaving the subwoofer to handle those low end frequencies, i've personally found that i like the sound of my M60s playing notes below the 80Hz range especially for music. I find that my EP350 sub does not have the tight bass sound that i like in that sound range. (I purchased my subwoofer more for the HT rather than music although the odd time my fiance listens to pipe organs...).
Anyways, in order to get my M60s to mesh well with the subwoofer (to remove the muddy sound) when the Onkyo speaker settings are set to 'large' i have turned down my subwoofer crossover (on the back of my EP350 there is a dial, several actually) to about the 55Hz range. In using this dial you can set the subwoofer crossover lower than what the Onkyo uses when your settings are on 'large' for the main speakers.
I rather enjoy the tight bass that the M60s put out for music and the sub only kicks in when music notes go below the 55Hz range or so.
You can see a poll that was setup awhile ago asking what other people were using for subwoofer crossover settings (but keep in mind there's more info missing from this poll that would make a difference in the selections)
sub crossover poll
Basically you can select either 'large' or 'small' options with the Onkyo and then tinker with your sub settings to see what sounds best to you. I would highly recommend using that Sound and Vision article as a starting point and go from there.
As for the Onkyo volume, yes, you really have to turn the sucker up.
The first time i listened to music i was shocked at how high i needed to turn the volume dial. My typical music listening level has the Onkyo set around 60-70 (using the same scale as you) and my typical dvd movie listening level is between 70-75 depending on how the movie sound was mixed. Believe me when i say, i have yet to get the volume above 83 due to extreme sound pressure!!
Feel free to send me a private message via these forums if you want to discuss the Onkyo more. Lando and i are enveloped in a conversation about DTS at the moment.