Dave-

1. If the parking brake engages higher from the floor, then chances are that 
 you need to adjust your rear brakes.  If the linings are badly worn they 
might need to be replaced.  Let me know if you need details. The Bently 
describes procedure pretty well.

2. Yes you can replace the fluid and bleed the brakes.  It is the same 
procedure as the clutch.  I would also bleed the clutch again to flush out 
any dirty fluid.  Just keep filling the resevoir with clean fluid and 
pumping out the dirty fluid until clean fluid comes out when the pedal is 
depressed.  I bet you got some air in the brakes when you replaced the 
master cylinder.

3. I don't think that you damaged anything (IMHO)...

Good luck--

Vic Welker
Boulder, CO
1987 Vanagon GL
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