
Welcome on board mate.
The backfiring is normal - its the AIS doing its stuff for emission control and cleaning up unburnt fuel in the exhaust.
The small box with a knob on it is a Kev Mod - a fuelling devise to richen up the mixture. You say it goes from 6 o'clock to 5 o'clock, we'd actually say it went from 12 o'clock to 10 o'clock! Same thing, you're just looking at it upside down!
At 12 it is off and fuelling is as stock, increasing it round to 10 o'clock will richen the A/F ratio. On a stock bike it wants to be around 3 and on a bike with intake mods (high flow filter, snorkel removed etc.) it wants to be closer to 6 o'clock.
Have a twiddle with it and see where it runs best.
More info here -
http://www.xt660.com/showthread.php?t=11641
Have a look through the threads on tyres to see what others are using. Same with suspension.