There are a few quirks in the priority lists, the Nagato being one of them, and these are supposed to be remedied in the supplement.
As for how we play at my FLGS, we are running the campaign rules, so we play from the 6 campaign scenarios listed in the rule book (which makes for some seriously unbalanced games at times).
As for balance between fleets, there are issues, especially in higher priority games, where the lack of AP in the German fleet list puts it at a disadvantage against the America and Japanese Fleets (though German Radar helps versus the Japanese). You truly end up creating a different play style depending on the Nationality of the fleet you are facing.
In any case, even though the Bismarck will never be as good as the Iowa, it is a lot of fun trying to beat the American BB down.