For the needle problem, I'd guess that either you have the wrong brand/type of needle for your machine or it is not inserted correctly (all the way to the top). Try changing back to the original needle. If that one works, I'm thinking you need a different brand of denim needle.
You do have the flat side of the needle facing back, don't you? And you have loosened the screw enough that you can be sure the needle is inserted up as far as it will go?
I just bought a sewing machine at the thrift shop -- great condition, clean, needle went up and down when I tried it in the shop, etc. I think the reason it was given to the thrift shop was because someone had inserted the needle wrong. As soon as I reinserted the needle correctly, it worked fine.