Nice thread Chris. The questions you ask have been addressed in several other threads. I'll post the links when I can find the time to find them.
For now, I'd like to echo what Sanghamitta has said about 'relaxed awareness'. At my recent stay at the Dhammagiri hermitage, the abbot Ven. Dhammasiha mentioned how anapanasati--although important and useful for cultivating mindfulness and concentration--can lead to a kind of aloofness. This is because through a focussed awareness of the breath, one can experience such subtle realities that the coarser realities of everyday life become somewhat jarring. This may not really be an issue when we are on retreat and it is certainly not so much an issue for a monk living in solitude. However, it can become an issue in lay life where we have to negotiate human interactions and activities. Perhaps this is similar to what Sanghamitta describes as 'hypervigilance'?
In any case, I've recently taken a liking to Ajahn Sumedho's phrase, 'spacious awareness'. I have found this interpretation useful in helping me put mindfulness into practice in everyday life.
I also recently listened to Joseph Goldstein's dhamma talk entitled, 'Knowing, Awareness, Wisdom'. He describes 'knowing' as the narratives of our live: the thoughts, feelings and perceptions they we have at any moment. 'Awareness' (which he uses as a synonym for minfulness or sati) is that which recollects the act of knowing or that which recognises the process of thought. He adds that 'awareness' is the crucial component that allows us to investigate 'knowing'. From this space of 'awareness' that embraces 'knowing', 'wisdom' or understanding arises. I find this explanation very helpful too.