Yes, I had plain distilled water to start, but I've since corrected the problems and it's leak-testing right now.
First I re-routed the HC order, per brucoman's recommendation and that fixed the bleeding problem--these things really do clear all the air in 15 seconds
After that I was still getting that slight "sand" noise, and the top of the res was still caving in slightly. I scrounged up a couple of 1" copper fittings for the pump inlet and res outlet and have connected them with a net length of ~1" of 1" tubing. This cured the "sand" noise, and the new taller, skinnier, one gallon res seems to give better separation between the inlet and outlet for the small bubbles to come out without being sucked back in by the pump inlet.
Can't thank you all enough for the tips, they sped up my set-up time considerably and saved me a helluvalotta grief.
Thanks again