Since I went searching Google for setup problems using the Onkyo TX-SR602 and found nothing, I thought I would post some information here that may prove helpful to others.
Setting up the Onkyo TX-SR602 involves placing their acoustic microphone in the listening area and starting a test procedure on the receiver. My initial results were horrible. Most speakers were not working at all, and the ones that *did* have audio sounded blown. My powered sub was not "discovered" at all. My advice: try the mic setup a few more times, and in different ways. This is what I did to get everything working:
I noticed the mic had a tripod screw on the underside. I put the mic a tripod at ear-level by the sofa. Make sure there are no obstructions between *any* speakers and the mic. I believe the mic picks up direct acoustical waves, and barriers such as chairs, sofa backs, and furniture can affect the setup. I also moved my powered sub from behind the sofa to the front of the room, again leaving no obstructions. Setup ran perfect! I moved the sub back behind the sofa. You can then fine-tune db gain using the on-screen menus. Now my system is working awesome.
Best to use a sound level meter when setting up any receiver, even a top of the line model like the Elite 59 or Yamaha 9. The auto setups do not seem to work as advertised from any review I have read. I think anyone who has a decent system needs a meter anyway.
I agree wholeheartedly with realelitefan, I do not like what the auto setups do. I have an onkyo 601 (the model before your 602) set up with a sound level meter and it sounds great. My HK has the ez set and after 5 separate trials using it it still sounded terrible. I got out the meter, set it manually and it sounded great. So.... try doing it manually with a sound level meter (about 40 bucks or less at RatShack) and it will be a lot better