I've been experiencing a lot of the same problems.
Joom!Fish with sh404SEF.
I've noticed when i replace the helper.php in /modules/mod_jflanguageselection to the helper.php from the RC version mentioned above that this solved only a part of the problem.
The home button was still an issue since my language went to "Default" and so my entire menu was "English" but i had chosen "Dutch". So this wasn't a good solution and so i changed the helper.php back to the latest Joom!Fish version.
I will explain how i solved the languages problems below.
I have a website with 5 different language and using English as the default.
My Joomfish configuration is as followed:
Plugin: System - Jfrouter
|- Enable Language determination Yes
|-Language selection for new visitors? Browser Settings
|-Use 302 redirect No
|-Save user language in a cookie Yes
|-Use SEF prefix Yes
To solve the problem i did the following:
Go into the Joomla adminstrator menu.
Then select -> Components -> JoomFish -> Translation
I choose a language in this example: Dutch
So i filter Joomfish by selecting by Languages: Dutch
Then i choose for Content Elements: Menus
Then i select "Home" from the list.
Set publish to "Yes".
Now start the translation:
Label: Menu Alias
Parameters: default copyLabel: Link
I wasn't able to change the translation to: index.php?option=com_content&Itemid=1&lang=nl&view=frontpage
So i thought this has to be the issue since i want to use this translation URL just like how the Language Switcher module works.
Repeat these steps for all languages.
To solve the Label: Link problem i went into PHPMyAdmin like someone else also referred to.
Make sure that you enabled all languages before going into PHPMyadmin this saves some time.
When you are in PHPMyadmin go to the table: jos_languages
Now write down the Language ID's.
Then go to the "table jos_jf_content" and search for: "frontpage"
You get a nice list with all the translations that you just made.
Now look at the Language ID and change the value according the language that you want:
You can just leave the english default if you dont want the link to go to http://www.mydomain.com/en/
This isn't the easiest solution but it doesn't require replacing hardcoded files just the database that contains the translation information which can't be changed by default.
I hope this leads to a more permanent solution and that the developers can do something about this probably easy to fix bug.
:edit: fixed some typo's