I'll see if I can find the time somewhen to update the demo...

Easy things first: position of the loading bar is always the "middle" of the image, but the extents of an external image are (obviously) unknown before it's been loaded. So to position it you have to manually provide the size of the image in the xml.
The reflection issue is seriously stange. Because the reflection doesn't interact with anything at all, it just makes sceenshot, so to say... what you could try is to make the page containing the swf buffered, i.e.
<page buffer="true">Which would at least fix the problem that the text is not being rotated (which is a limitation of Flash, it cannot transform text).
As for the AS2 part, sorry, but I have no real clue about AS2 anymore. I did mess around with it quite a bit in the days, true (the not so public version 2 of the engine was even written in AS2), but I've not used it in a looong time. :/
Some general thoughts, though: as you cannot create a new instance codewise when using AS2 you have to load it, indeed. So, to use the FlashVars, i.e. the settings from the html you'll have to pass them via GET variables (you know, that ?v=x&w=y stuff in addresses). Only thing I found on that real quick was
this forum post. The xml file will have to be in the same folder as the swf loading the megazine.swf file.
Regards,
Florian