Your first perspective is correct.
The baffel hangs from the top edge, between our heads/backs/shoulders. Imagine lying separated, on your sides, each of you facing out. A taught top bag will 'tent' the gap from shoulder to shoulder. The baffle should completely fills that space between you, and maybe a bit more for a great seal.
Temperature range depends on loft, which depends on construction and on fill. Nunatak uses 800 fill, not cheap, but light and warm. Your target temp will determine the loft. There are many options out there.
As posted above, Western Mountaineering made a rectangular full zip bag and a coupler. Nunatak only makes the top quilt, and you get to improvise the rest. Both will work with you to get the best solution. I'm sure there are other great vendors as well.