Why is the water level low and some clothes are above the waterline — is this normal?

Yes, this is completely normal for this high-efficiency washer. The machine has been designed and optimized to provide thorough cleaning using less water to conserve energy and resources, so you will not see a full basket of water as with older, less efficient washing machines. As the washer dampens and moves the load, the level of items will settle in the basket, and it is normal for some of the load to be above the water line. (Page 1)