1. Any links or suggestions on how to get a better digital signal?
I know theres signal amplifiers out there but never tried them. Your problem is the way you hooked it up. I too tried going thru my HTS 3500 but it losses to much of the signal and had to hook it up straight to the box. I found this out the hard way (In the middle of a pay-per-view fight) I called TW to complain and after the had me unhook the HTS 3500 my signal jumped to acceptable, haven't had a problem since.
2. I am using the HDMI Input (with HDMI cable) for my cable box (which carries both the digital and HD cable channels). Should I run a separate cable from cable box to receive the digital channels?
Some say it looks better but I didn't notice a difference. SD is going to look like crap anyway, also it's a pain to switch inputs constantly.
3. With the HDMI Input, the MPEG Noise Reduction is greyed out. I read enabling this option might help my digital cable reception. Can I enable this option to improve reception?
It's not going to do anything for your signal however it will make SD look a little better.
4. I currently have my Playstation II hooked up to Video 3 side consol input. I was told by a friend that PS II is not compatible (and can be harmful) with certain DLP TVs. Is this true?
Never heard of this and not sure what your friend is talking about. I have a Xbox and a 360 hooked via component. He may be thinking of burn-in issues other TV have but that is not a issue with DLP.