I've investigated this as I also have two 5850s.
1) Yes you will need to reduce settings. The biggest problem is the 1gb of VRAM. I'm pretty sure vapor x are also 1gb cards. There are "eyefinity" versions of the 5850 out there with 2gb. But anyway, the VRAM is going to be an issue so at the absolute least AA and AF will need to be turned down/off and depending on the game, other settings as well.
2)All out puts have to come from the top card. For 3 monitors you must use the DisplayPort output on one monitor (at least). If your monitors do not have a DP input, then you will need an Active Single Link DP to DVI adapter which are around $30-40. Do not buy a dual link adapter as those are only needed for display resolutions above 1080p and they cost $100 more.
Thank you. Couldn't have asked for a better/more thorough answer than that!