Wow lots of text here, and well I did read some of it, honest. So I'm going to post some stuff, and hopefully I'm not repeating some stuff.
Okay first off I would like to ask, why do the Kyr'Ozch have to be so much more advanced? Is there some rule in sci-fi that states, "If you have aliens in your story they must be the most advanced thing out there"? Okay yes they're crossed the galaxy or some other dimension, but lets keep in mind they have a map.
Okay so here's what I have to say on the subject after much thought and some debate.
There used to be this great post floating around that I have yet been able to find again, but it did a great job in explaining the Xan and the creation of Humans before the Ado and Pen quests were put into game.
From what I understand, the Xan start using the source and start becoming more and more corrupt and this once perfectly unified race starts to split into factions. Which is where the Redeemed and Unredeemed come from. Just before the Cataclysm two arks leave Rubi-ka one with the pre-redeemed Xan on one and the per-unredeemed Xan following behind. The Redeemed Xan goes off and starts seeding life across the galaxy as the Unredeemed follows behind killing off the Redeemed's seeds. Until they come to Earth and find the humans, and the Unredeemed see a bit of themselves in humans and decide not to kill them off but to stick around and manipulate some of them into doing their bidding, as we see in Prophet with Vanya and Roman then the Omega.
Okay so lets move back a bit to before the arks leave. Now if memory serves me right, there was a small independent group of Xan that saw the over use of the source as a bad thing, and knew something horrible was going to happen. And they start telling people "The end is near, stop screwing with the source" some listen and most don't.
This is my idea for the Kyr'Ozch. This third Independent group builds the first ark and takes off before the other sides do. Saying, "Screw nobody is going to listen to us we're out yo" and they go off with the idea to seed life some some kind of Xan will survive after all hell breaks loose. On their travels they stumble through some kind of worm hole and end up in some alterdimension galaxy/universe and here this group seeds what will become the Kyr'Ozch. Unlike the Redeemed and Unredeemed with Earth, this 3rd group stay and helps raise this new race they've created. And in doing so they teach them all about the source, and they teach them how it can corrupt them as well as empower them. So the Kyr'Ozch are instilled with this innate fear and respect for the source. So even though they have a record of where to find the source they don't go looking for it, because they know it's safe. We can even say it's been taught to them "Do not seek the source until it calls out to you". So when the beast dies and the ping goes off and Number 9 (turn me on dead man) send off his little bit. They see it as a call to arms with a single focus to protect the source. Whereas humans didn't have this kind of interaction with the Xan that gave them life, just little pushes here and there so they don't have this strong tie to the source.
Now so how much more advanced are they. If we go with the idea that this peace loving faction of the Xan helps in their evolution, they are for the most part a pretty peaceful race. Now they may have some really big advancements as compared to humans but they're not war like. But they have this instinctive drive to rush into battle to protect the source. So they pretty much come to RK with whatever they have weapon wise and come against a race of being that loves to kill things, and they are overwhelmed. They don't have the strategy to deal with the new foe they've encountered as they've never witnessed combat on this level, but it doesn't matter they need to keep sending in wave after wave to protect the source as that's the only thing that matters to them. So no they're not going to attack other planets or places because very simply they're on a crusade to kick the infidels out of the holy land. But in their rush to fight they pretty much come to RK with pitchforks, torches, and shotguns, while the humans are carrying nukes.
So when it comes to space travel and some other things they squash human tech, but when it comes to weapons and war they've way behind in the curve. And now a few years later the Kyr'Ozch are starting to see factions in their culture forming from this war, and there's a group sitting there going "umm maybe this head long attack wasn't that good of an idea, all we've seemed to really do is make them stronger and give them better weapons". Enter in the friendly aliens that are trying a different approach to what they see as a losing war.
As for why they can't really exist all that well on RK. Since there's been enough ripping off of Star Trek within these stories I'm sure one more won't hurt. I say they exist in a universe of fluidic space. Which would explain why it seems like you're underwater on the alien ships. A universe filled with a viscous slippery clear fluid, we can call it Universe KY.