The Eminence H290 is what comes in the kit, and it works perfectly well. I also like the Peavey CH-3 quite a bit. I actually like it a little better than the H290 myself, but most everyone else seems to prefer the H290. You could also use the JBL 2370 - it's a great horn too.

About recessing the horn for flush mount - It's an attractive way to build your speakers and it will not hurt things a bit. In fact, some would say it's an improvement. I don't consider the difference to be significant acoustically because the edge is too small. But aesthetics are very important especially for something this large. That's worth considering in and of itself.