1. If "Ignore linked MXM mode" is set to No, I cannot used linked materials. If set to Yes, I can. That seems backwards? That is, I cannot click the "MXM link" checkbox when "Ignore linked MXM mode" is set to No.
You should be able to click it, unless there is no MXM path set for the material. To set the MXM path, use the Browse button; the link box should be checked automatically upon your choosing an MXM.
2. How can I make a material get linked by default when I drag it from the material browser, without having to go into the material and check that little checkmark?
Set Options > Material Defaults > MXM Mode to Linked. Note that if you drag the same MXM into the scene twice, only the first will be automatically linked, since it makes no sense to have two materials linking to the same MXM.
When I have linked material (green border around it), and change any of it's properties (colour, anything), the changes are not rendered but instead the original material. Perhaps this is the intention, but it seems to be it would make more sense if the modified material would be the one which is used, or if the interface (in rhino) somehow could make me aware of that fact. Perhaps that green border shouldn't be green anymore?
Yes, and no. That is indeed the intention, but Maxwell's native support for referenced MXMs has changed the effect. Previously, MXM mode came into play only immediately upon opening the Rhino file -- any linked MXM would have its state reset to whatever was, at that moment, contained in its linked MXM. Changes you made to the material would be rendered, and if you wanted to keep them, you would need to update the linked MXM (material editor > Options > Update Linked MXM) prior to closing the document. That is no longer possible, since Maxwell itself now has native support for referenced MXMs; regardless what the plugin writes into the MXS (it writes your altered material state, and you can verify this by opening the MXS in Studio and setting it to Embedded mode), Maxwell will use the contents of the referenced MXM. The upshot of this is that if you want to render with the modified material state, you need to push the changes you've made back out into the MXM file explicitly (again, by using Options > Update Linked MXM), prior to rendering.
I could try doing as you say and put in an indicator for this, but really, it should not be necessary, if you are using MXM Linking for an intended purpose. Meaning, if you see a green border, that should say to you: "Other people and documents are relying on the state of this material."
That is, it should be a rare occasion in which you have altered a linked MXM, and wish to keep the changes; in such cases, you need to update the MXM explicitly.
btw, I have MXM mode set to Linked. But I'm note sure what these two settings do or how they interact, perhaps you could shine some light on it JD?
I assume you are referring to Options > Material Defaults > MXM Mode. If so, this controls how materials are initially created; if it is set to Linked, then the MXM will be linked when you drag it from the MXM Browser into your material list in the plugin.