Edward,
You haven't configured things wrong.. unfortunately, you are running into some oddities of Joomla itself. When you make registration/login required to view content, that's completely handled by Joomla. When the "Register to read more" link is clicked, the login page you're brought to is the standard Joomla login page (/component/users means com_users, which is the built-in User Management component for Joomla).
On that page, there should be a "Don't have an account?" link where the user can register, but yes, it will take them to a new page to do so and the 'return' path isn't saved so they won't be brought back to the article after registering. If you have account activation enabled, that definitely prevents the return since they won't be logged in and still won't be able to read the article.
As for logging in with the wrong credentials, that also 'breaks' the return path as the original return variable isn't saved. Again, this is all inside Joomla's com_users component, not our SCLogin module.
With that explanation out of the way, the SCLogin module is growing and we'd like to have more ways to take over the registration and/or login process. It's not something there now, which means it's not an easy 'bug fix' we can implement.. doing what you're saying will take a bit of work. However, it's something we're looking at trying to tackle with a better registration/login flow system in the future. For reference, these are issues that we've mostly tackled in JFBConnect and JLinked. We'll check if there is a 'return path' setting and store it. That way, if authentication fails, we'll still have that value for when authentication is successful.
The text for "Register to read more" can actually be updated now. To do so, edit the /language/en-GB/en-GB.com_content.ini file and look for the COM_CONTENT_REGISTER_TO_READ_MORE string. You can update that with whatever text you want, including links. So you could make it "Register or login to read this article" where the register goes to the actual registration page. Even better, if you're using the SCLogin in the modal popup view on the same page, you can link the "login" text to trigger the popup. If that interests you, ask me how
Hope that helps explain and get you going a bit further. Any more suggestions or ideas are welcome.
Thanks,
Alex