Hi,
I'm not sure why the instance isn't highlighting. Sometimes if you have overlapping instances you need to be about careful where you mouse so you select the one you want. Similarly I'm not sure why you aren't seeing the instance bounding box in the same location as the instance in the render. If you were able to gather the project and email it (or a link to somewhere I can download it) then I can have a look at it. My email address is:
jomeder@planetside.co.uk
Regarding using the overhead view, this is something we're aware of. The problem comes about because the orthographic views (top, right etc.) are set up by placing the camera a long way away. As populations are drawn using a level-of-detail system based on distance this means the population instances get drawn as dots, which isn't ideal for editing. It's best just to use the perspective camera for editing.
Regards,
Jo