1. But you only get into the subalbums if you click on the album thumb of the parent actually. Of course you did not tell anything about what theme your are talking!!! Anyway, if you want to remove a link somewhere edit the theme.
2. The album thumbnail option is the right one. There are two options "most recent" or "random". You can also enable the "visual thumb seleciton" for individual ones on the options. But be careful if you have many and big images, this can cause time outs (thus disabled by default).