Hi Chris,
Yes, you have it right. The failsafe switch turns the regulator on and off and, therefore, both batteries. It will draw about 5mAH/Day out of each pack. You can use any two cell lithium with this, polys are fine. I think you should have plenty of flying time with 2640mAH of battery.

Please ask all the questions you think of. Thats what I am here for.