Tips for adjusting Shimano M355 hydraulic brakes I have upgraded from cheap old front cable disks brakes and rear v-brakes to Shimano hydraulic M355's front and rear. I always adjusted my old brakes for a very tight fit (to reduce dead space between pads/rotor) thus shortening my lever throw. 

As a sidenote, I know the M355's are the lower end of the hydraulic spectrum but i would have expected them to be better than my old lower end cable brakes. Also, I have bled both of these brakes twice in succession so air cannot be an issue

Q1.
With these new hydraulics there is a large space between the pads and rotor. The pads do auto-adjust correctly but not enough. Are there any tricks to modify this? (I have tried over-filling the system and it works briefly until the pads wear down a bit. However, i am unsure if overfilling could damage the bladder/diaphram in the lever)

Q2.
I have noticed that both the front and rear levers feel different when applying braking pressure. The rear feels nice and soft, yet firm and feels the same all the way through the stroke. It also provides good power. However, on the front, when the pads contact the rotor, you can really feel the lever go from soft to hard immediately. The front does not provide as much power as it should.
Does this indicate something is wrong? If so, what?

Sorry for the long paragraghs, just trying to give you all a clear picture.

Thanks in advance for any help
First, I think you made a good decision. Hydraulic disc brakes are the way to go, and the M355 are really nice for the price. Also, I assume brake pads/discs are not contaminated and caliper is straight in relation to the disc.

These are indeed the cheapest brakes, and therefore there is not much place for adjustments. If without touching the lever the pads don't touch the disk, and when you apply they do, than I would say they are ok. Maybe you would like them to do have a tighter feel, but with this model there isn't much you can do apart from lever distance to handlebar (play with this a little to feel confortable).

I don't think overbleeding helps. It shouldn't cause any harm, but the brakes were designed to work in a specific way, so it might affect behavior under heat, or might be causing the "instant brake" feel you are talking about, or might cause rubbing with new pads.

Another thing to notice is that it is normal, even in good brakes, that the rear and front feels slightly different, because of expansion on the tube under braking (there is so much tube going to the rear, right?). And also, as the rider you are more sensible to brake forces in the front, and they affect more the dynamics of the bike.

One thing I would recommend you to do is to bleed according to manufacturer's instructions and try to adapt. The change from pads or mechanical disc is huge in terms of the relation between lever force - braking force, and it is normal that as a rider you need some time to feel comfortable as you change muscle memory.

For example, on my road bike I always pull the lever/pads with as much strength as I can to do an emergency brake, whereas in my mountain bike with hydraulics I have to re-teach myself that I must always modulate brake lever even in an emergency brake. The dynamics are very different.

Of course there might be something wrong with them, but from your description I doubt it. If you can't take it out of your mind though, go to a shop, pretend you want to buy a bike with the same brakes as you have and ask for a small test-drive :)