... when using cruise-mine will go down two gears in quick succession, then change back up after a few seconds rather than building back to the desired speed more gently. (NOT in Sport mode)
It probably isn't going down 2 gears, actually. The box has a feature called "torque converter lockup" which activates when cruising to bypass the torque converter and improve economy. When the lockup comes in the RPM will drop by an amount dependant on the load - probably about 500 RPM when cruising.
When the box changes gear it has to come out of TC lockup so it will change gear and then lockup the TC again a second or two later. This is why the RPM rises when it changes down, and then drops a little in a second step as the TC locks up.
Cruise control is another system where the ECU doesn't have all the information the driver does. If the speed is dropping below that set on the cruise control the ECU will apply a proportional amount of throttle. That may result in the transmission changing down where a "real" driver would have avoided the change. All the cruise control knows is that it has to keep a constant speed.
Holding an auto box on the line at the stall speed is not really any different to pulling away with a caravan on the back on a steep hill. Bear in mind that 100% of the engine's output is being dissipated as heat in the fluid in the torque converter so don't do it for more than a few seconds and leave the car idling for a few minutes after the run to circulate ATF through the fluid cooler.
Kevin