I can not believe your are trying to mow in 3rd gear with this thing. I consider that gear only to be for walking (almost jogging) back to the trailer. Of course, it is not going to mulch well when you go that fast.
We have been pretty impressed with the mulching even on some very very thick 100% Kentucky Bluegrass lawns, you just have to go at a suitable speed...
As far as the blades I always sharpen even new blades before I put them on our mowers. I have never felt that blades come sharp enough from the factory.
I do have to say that the suction with the stock blades is significantly less than impressive but we just orders some high-lift blades to try. We have not tried bagging with it as of yet so I can not speak to that either.