[PbFut]

Do not put anything but brake fluid. That includes air. Compressed air has lots of condensate in it. Brake fluid is very good at mixing with water and other fluids. Doing so drasticly lowers the boiling point of the brake fluid.
As for your bleeding and rear circuit problems. If the lock out plunger is centered and you are sure the tool is holding in place, look to the proportioning part of the unit. It is the short section at rear of the assembly that the rear brake circuit attaches to. That part can fail. I got a brand new one DOA. Took me two days to conclude the new out if the box part was bad.