Hi,
I'd be interested in knowing a little more about the level of music and the age. I might be able to give you some more specific ideas.
I have a ten year old playing grade 6 and a seven year old playing grade 7. Most of my students are very young, and others are about grade 3 or 4. None of these students can reach octaves.
I guess I don't tend to think a lot about it for most of them - I am simply used to my students having a small span. When a student shows me they can stretch an octave on the edge of the keys, I am so unused to this that I tend to respond with surprise. It's kind of funny. I actually have a hard time knowing what to do with students who easily reach a large span - I also have very small hands.
Anyway, back to your question - sorry for going on for a bit. Just trying to empathise.
Up until about grade 6 or 7 there is a huge range of repertoire with only occassional octaves played as a chord. Avoid pieces that really rely on these octaves. All other pieces I teach broken octaves, rewrite chords, use chords instead of octaves, arpeggiate chords - whatever works for the piece. I know this is an extra technical challenge for these young students, but this is just one of the things they take in their stride - part of playing at their levels. I am happy for them to learn the necessary skills - it puts them ahead for higher grades and things just get easier for them as their hands grow.
My real issue is starting to develop with the young girl who is playing past this level. I play through pieces I give to her and determine the likely technical difficulties. I avoid pieces that do rely on unison octaves. She has the technique to deal with most other things, but options are significantly limited.
Issues with legato are common among my very small (mostly preschool) students. There does seem to be a choice between playing either legato with flat fingers or detached with a better hand position. I think the better option is to allow some detachment in pieces / scales/ arpeggios, but work with small patterns that can be reached comfortably - even if this is using fingers 1 to 3 on notes side by side. Strength is the problem when it comes to the reach - leading to the flat fingers. When you play at your greatest reach, you have to use the small finger muscles - in the young ones these muscles are not quite strong enough to grip as needed. It is better to play lightly / portamento in a proper position over the keys. If they must play legato when the fingers are not ready, they could depend too much on the wrist and create bad problems here.
It really depends on what age and level you are working with to say much more than this. If you work on developing the stretch between fingers, make sure the student/s learn to 'regroup' or rest the hand after each stretch or short period of stretch.
I think the 2 fingers on one key is probably something that will pass. At least the hand is is not strained when doing this.