Trainers eat tires. Get the cheapest slicks you can and burn them up. Knobies won't work, although they might just turn into slicks if you tried, i'm not sure. Funny thought though.

Brake levers are adjustable, I'm not sure how with mt. bike brakes, but I think it's possible.

Proper seat position is individual, a better rule is that the angle of your knee should be bent 10-15 (maybe 20) degrees when at the bottom of your pedal stroke. Any more bend and you're not using all your power.

The trainer can be deadly, even with TV. Maintaining any intensity is hard, I'd reccomend a heart rate monitor so you can be sure you're getting a workout. Buy some motivational music or spinervals/train right DVDs to ease the trainer pain.