Firstly, the answers here are not all mine. Given the breadth of the questions here, I've pointed a number of experts in the direction of your post and I'm collating them all.
Firstly, on the implementation of XPiNC, the chapter in the Mastering XPages book is probably the best explanation of how it works and why it was developed that way. I don't think it's as simple as embedding a browser window, one of the challenges being which browser bearing in mind Notes runs on Linux and Mac as well as Windows. Each uses a different default browser. XULRunner was used and one of the big changes for XPiNC in 8.5.2 was an upgrade in the XULRunner, which improved some issues. The main use case for XPiNC appears to have been for local applications, which almost certainly had a big impact on the direction taken. There are some discrepancies but, on the whole, there's a high degree of fidelity in the HTML outputted. The xsp is one example, but Per Lausten tried loading an image from CSS within the database and couldn't reproduce your problem. I also tried with XPages Help Application which I provided for OpenNTF. This uses css to implement a loading gif when switching between views, and this seems to work fine in 8.5.2. Does the correct image show if you launch your XPage in a full browser, e.g. Firefox? If not, there may be a different problem but tools like Firebug will help debug. Does the loading mask image show in the middle of the screen with XPages Help Application opened in XPiNC? I'm seeing that with 8.5.2 FP1. We agreed our approaches were to develop and test on something like Firefox first - a browser with good developer tools for troubleshooting - and then address the small number of differences in e.g. XPiNC or IE.
Performance is an issue that has been heavily discussed. Initial load of the first XPage is very slow. Performance of opening subsequent XPages or XPage applications is then quicker, but still slower than via a full browser. Enhancements are coming in 8.5.3 to improve this with the facility to preload the XPages runtime for the Notes Client.
I presume you're trying to add XPages functionality to an existing client application. There are places where that's appropriate, for example if you need a form for users to update multiple documents at once. I will shortly be adding that for a customer, but only after demonstrating the performance hit that will be recieved. But on the whole, few developers would take that route as a preferred option. It's much harder to integrate the two seamlessly in Notes Client compared to building a hybrid XPages/traditional web application.
The preview pane issue, I take it this is when previewing from a parent document. The XPage launch only works when opening a document, not previewing. We discussed a few options. PostOpenDocument event isn't going to work, because events don't fire from preview. The alternatives would be to have a read-only form available for preview but the XPage available for opening. Alternatively @SetTargetFrame + @UrlOpen from a view was suggested.
On Refresh and F5 not working, if I click onto the XPage F5 appears to refresh the contents as does the refresh button, again in 8.5.2. Could the problem be that the focus is elsewhere, so F5 is acting on a different area of the Notes Client?
In terms of XPages, the Form is for data structure, so fields, input translation and input validation. The latter two are managed by the computeWithForm property on the datasource. Other settings on the Form have no effect - events, action buttons, Form properties such as "Automatically enable Edit Mode". The XPage manages all presentation of the data, including edit or read mode. To force edit mode you just need to go to the datasource on your XPage and set the action to editDocument instead of openDocument.
XPages in Notes Client still has significant limitations. Some commented that they would not yet use it for a production application. There are places it has strengths within the Notes Client, for example in a sidebar application, something I delivered as a browser widget for a customer and which, because it's a browser widget rather than XPiNC, works on 8.0.2. I hope, like you, it improves and investment is being made. With 8.5.3 initially loading time is improved and XPages can be dispayed in a sidebar without using a browser widget or composite application, all of which give opportunities to use the sidebar to utilise the benefits of XPages development (pulling data from different views, different datasources, different databases, charting and other Dojo functionality, combining multiple documents easily into a single editable interface). There will be further improvements I'm sure for Notes 8.5.4.