Every time I use a blow-off tube it's in the bunghole that the airlock goes into. I don't place the tube into the airlock itself. Unless your airlock's bottom (that goes into the bung's hole) is wide open, you could be restricting the flow from the primary into the blow-off bucket.
I also use a 2 gallon bucket (with at least 2-4 quarts worth of sanitizer in it) for the other end of the tube, making sure that end of the tube is well inside the solution. As long as you don't have any kinks in the tubing, the length doesn't really matter. I don't measure the blow-off tube length, I just use what looks like will be enough to get a gentle arc from the carboy to the bucket. I think it's usually 4-5' of tube.
Depending on how active the fermentation is, will determine how much goes through the tube. I use them especially when I've filled the primary a bit too much, or I'm unsure of how the yeast will start fermenting. I've started using foamcap-s, so I'll probably not need the blow-off tubes nearly as much.
I wouldn't suspend the tube above what it wants to go, for the high end of the arc. Better to have a low, gentle arc than go 3' off the ground with it. Most of the time, the tube (on mine) only goes up another 6-12" above the bung. Having too much height above the carboy could create more flow restriction reducing the effectiveness of the blow-off setup... Although if you have a really active fermentation going, it won't really matter.
I use mixed up StarSan in the bucket for my tubes. I like using that since it will bubble up nicely letting me know, at a glance, that fermentation is active.
As for the ounce, or two, of water going from the airlock into the wort... I wouldn't worry about it at all. I fill mine with filtered water, and have had water run from inside the airlock into the wort/must when filling it too much, or when securing the airlock down better. I just wouldn't let really old water go into the primary/fermenter. Although if the water doesn't look clean (in the airlock) you should be changing it before doing anything else.