Hey,
1.) Sure, you need to open up /framework/classes/kclass_display_box.php, find this code (around line 112):
$preview = kriesi_post_thumb($post->ID, array('size'=> array('M'),
'display_link' => array('none'),
'wh' => $k_option['custom']['imgSize']['M']
));
and replace it with:
$preview = kriesi_post_thumb($post->ID, array('size'=> array('M'),
'display_link' => array('permalink'),
'wh' => $k_option['custom']['imgSize']['M']
));
2.) There are 2 options to fix the stretched images:
i.) Upload higher resolution / larger images - recommended.
ii.) Open up functions.php and change the display image sizes. This will also affect every other instance of the image which you edit the size and will require modification to the theme files elsewhere to adjust the CSS and placeholder for the images.
James