1W per gal is fine if you just want to light the tank but you will need more for soft corals down the road. T5 lighting usually does perform as well as comparable PC even though they don't get quite as hot and use less power. Your lfs probably has different setups of T5/PC/MH lighting so you can compare the different options.
IMO if you can afford to get MH/PC which is quite expensive then I'd go that route so you won't have to upgrade in the future if you decide you want more then just soft corals. The cost is usually about $200-$300 more then what you are considering now.
I suspect they just don't want to deal with drilling the sump and with plumbing the pump outside of it because I've never heard or had issues with it not being in the sump. Both the intake and outtake are threaded which makes hooking it up very simple and the pump doesn't ever run dry so I'm confused why they won't do it.
Either way due to the amount of water running through it (about 800 gph with head preasure) hopefully it won't have time to heat your water too much. I think my pwc water stays at 79 degrees mostly because of the small water volume (30 gal) and that 120 gal (total with sump) would probably not heat up as much so you should be fine.
HOB overflows have a greater chance of loosing siphon which is how they get the water over the lip of the tank and if it did then you could flood your floor until your sump ran out of water. Then your pump could also be damaged running dry. There are switches you can by to cut the pump off if water drops below certain levels to keep from overflowing and running your pump dry.
In tank overflows don't use siphons since the water doesn't have to go over the lip of the tank. When excess water enters the tank from the water in the sump being pumped into it the water just drops down the hole which is much less likely to become clogged and doesn't run the risk of loosing siphon. Are they installing
Megaflow overflows? Will there be more then one hole? Also you want to have them T the return to more then one outlet if possible.
Lastly have then plumb the return from your pump to the refugium as well so that you don't have 800 gph rushing through your fuge and you can control the flow. (see photo below, which also is a link to how sumps are set up)