Not sure about cotton balls, but I used folded paper towels to great effect before I switched to insect cups from Superior. As for where you keep them, they can be kept just about anywhere. I keep mine under an aquarium stand. As long as you put them in an area that doesn't get below 60 degrees they will be fine. As for how mites get in, they are very small. It's easy for them to crawl between the lid and the bottom of the container, since on most cups the lid doesn't meet completely all the way around. So yes, they can get in if the culture is plugged. I had them get into my confused flour beetle culture, and there were no holes at all in it.