I'd agree to get rid of the bioballs. You can use live rock, but I wouldn't put it in the same spot as the bioballs as they will fill up with dietris.
I would get some filter socks and place them over the plumbing that comes into the sump. You will need to change them out every few days(I change out mine twice a week) and wash the dirty ones.
And yes, it is preferable to put the heater in the sump.
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