Newsblur is a great alternative. The web client and Android clients are both nice to use -- no experience with iOS but I'm sure it's comparable -- and are open source, written and maintained by Samuel Clay (conesus on HN).
I pay for the service but there's a free tier as well.
1. There is a hard limit on a number of unreads per feed, which is pretty low (100-500 depending on a feed): https://getsatisfaction.com/newsblur/topics/feed_cut_off_aft...
2. When not hitting that first limitation, Items are marked as read after 30 (previously 14) days: https://getsatisfaction.com/newsblur/topics/do_unread_items_...
Personally, I really like Newsblur. It's available on all the clients I care about, it's pretty fast and it's Open Source with a sane business model. I'd really like it to have search as that's the main thing that stops me finding good trends in my RSS feeds.
On the upside, Samuel seems to be very quick to respond to issues, and pushes updates out pretty often, both to the app and to the site.