Virtual Folders display wastes space.

1. the TLB version uses a lot more blank space, which is unnecessary. it also adds a vertical gray bar, which isn't necessary. is there a way to change these things?

The vertical grey bar is supplied by the skin (either TLB or Windows) you're using. The blank space can be fine-tuned in TLB Settings > Metrics > Menu item height

2. the TLB version has a fixed menu width, rather than automatically adapting like the explorer menu to whatever the file name length is.

Increase the value of TLB Settings > Metrics > Max menu width

I have no idea about the performance issues...