When you are in your Crave Dashboard, click on Genesis and then find the section Content Archives. Choose the navigation you want for the blog posts and save it. (I would switch to another one and save it, and then switch back, and save it again.)
Then go to http://yoursite.com/blog and you should see the navigation at the bottom of your Blog page.
(You have to create a Page with the title 'Blog" and nothing in the content area, and choose the Blog template from the dropdown on the right side, if you haven't created a Blog page yet. This may help with your 404 errors too.)
For the Home page, you do want to check "Show Category Archive Link". That will link to a category archive page. I don't think you can get the Older-Newer navigation with the Genesis Featured Posts widget unless you choose a category for the posts; you can't have All Categories or nothing shows up.
I've used the Genesis Grid code on the home.php template, and have gotten older and newer that way, but only Category Archives with the Featured Posts widget. There is a Genesis Grid plugin that may have the navigation, but I haven't used it yet. http://wordpress.org/plugins/genesis-grid-loop/
Also if adding the Blog page fixed your 404 errors, you could just add a Text widget in the same widget area as your Featured Posts with a direct link to the /blog/page/2.
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