One, if I allow them to drop "straight", when two of them hit each other both of them seem to completely disappear. Why is this? If I put a bit of torque on them when they are created this doesn't happen.
This is a common problem with standard cylinders in ODE. The torque fix is news to me though, good find :)
But when there is a pile of them, they seem to constantly squish up and down a bit oddly, is there a way to make them a bit "harder"?
Try altering the Geom ERP and CFM values with these...
dGeomContactSetSoftERP(geom,erp#)
dGeomContactSetSoftCFM(geom,cfm#)
or alter the world (global) settings with these...
dWorldSetERP(world,erp#)
dWorldSetCFM(world,cfm#)
Also, try adding mass and density.
If you're still stuggling, can you post your code (or send via email) so that I can take a look for you.