Yeah... I'll probably flip the combinators at some point, since you're not the first to complain about it and apparently everyone does it the other way around. It's just not something I really thought about...
The overflow chest has been the source of a lot of my headaches with this mod. It's purpose is purely to avoid deleting items when switching recipes, though it now also tries to insert them back into the assembler so you don't have to do that yourself with inserters, which used to be quite painful... If you don't want to use it tho, the combinator has an option to just discard the items instead.
As for why it doesn't use the internal chest? That's a whole saga of it's own... In short, there are two main problems with it: First is you can't choose what kind of chest it's going to be, meaning you're out of luck if you want to use bots, and the second is that modules would get mixed in with the overflow items, which you don't want for obvious reasons...
There are quite a few threads on here discussing this issue, so you can read through those if you want more details :P