I don't know why they would get cut off either! I print mine at home and at Walgreens all the time and have never had a problem. As for circle punches, yes they are a pain. Here is a link to my new favorite circle punch for bottle caps. I don't know if this site is the cheapest or not, I just took the first site that came up with it. http://store.scrapbook.com/f-7436.html
The images fit absolutely perfect on the caps! As for the 8.5x11 image sheet sizes, I do think that most people are printing them at home and that's why us sellers choose that paper size. I do not push my images to the very edge of the paper because I don't want images getting cut off while printing. I know most sellers would be happy to try to help you out!