Based on my experience with the base game and with Supernova, the "Distant" setting is broken in Supernova. I used it all the time in the base game because it placed the other races the way I liked. In Supernova it puts most of them in the same sector with me, which is what you have seen. I suggest never using it.
The "Far" setting works the way it is supposed to by making sure no other race is in the same sector as you. It may not work well in other aspects of setting up the game. I never used it except for testing a few times.
Changing the values in some of the files may not work. I modified many of them in the base game and got what I thought were better results. Similar changes in Supernova don't seem to do much good.
You also need to be aware that the game generally ignores the xml files. It takes too long for the game to read and compile all the xml files to use them, so it reads pre-compiled files. Changes you make may not be read. Regular modding is not available yet in Supernova, so it is hard to get changes to work.
Making changes can work if all the xml files are compiled so that the game will read them. That is what I do. I don't like giving information on how to do that because I worry it may lead to complaints about "bugs" in the game caused by someone doing a bad job of editing the files.
The way to do this has been reported by some Stardock employees, and a number of players are using the method to make changes, so I will report it here.
After making changes to the xml files, go to the game directory and find the folder "Tools". Open it and find the file "CompileAllData.bat". Run that batch file. It takes about 45 seconds on my computer to compile all the files. When it is finished, you can run GalCiv4 Supernova with your changes. Just be careful about reporting any bugs that you may have caused with your changes.
It can be difficult to keep track of what changes have been made to which files, so I keep copies of all changed files in another location. In case you want to start over, use Steam to verify your files. That will reset the game to the default values.
