I happen to think that the Final Five came from a previous cycle -- referring to the frequently repeated mantra 'all of this has happened before, all of this will happen again'. If humanity originally came from Earth, colonized Kobol, and is now returning, then it all kinda makes sense.
There are three facts to support this view: first, the dates on the structures they find as they move towards Earth (beacon, Temple of Five) are actually getting older, second, the prophet Pythia chronicled the voyage to Earth, but somehow her records got back to the Colonies, and third, 'All Along the Watchtower', as a song, is a story told in reverse chronology.
But I might be totally wrong.
As for the depiction of the Cylons, I agree that they've gotten less intimidating, but, frankly, I'd have been frustrated if they remained enigmatic killers. They're too important, and they offer too many good storytelling opportunities, to remain opaque.
It would just be too morally easy for them to be a force of destruction. And BSG has never tried to be easy.
I believe part of the reason they seem so unstable and ruthless is because they're a young society, almost a species in adolescence. They're not used to conflict and challenge.