That is a really deep question you are asking!
The core of my work is in DSP and analog signal processing. If you want to set it "correctly", there isn't really a "correct" way. Now for equalizers you typically have between 5-7 bands for car-audio equalizers. Typical equalizer settings change based on the type of music that you are listening too, the accoustics in your vehicle, and personal preference. Now, if you go to the "theory" world, they will say to make the output maximly flat, so that it is in effect "equalized", so if your system was truely perfect this would be the ideal case. Now, if you are just wanting the quick answer, adjust the stuff until it sounds good. your m band layout if you looke from smaller to larger bands should look like a U or W depending on the bands, and that typically provides you the best response. This can easily be seen mathmatically with a little bit of fourier analysis and some simple windowing techiniques. I recommend you read a good book on signals and systems. If you want recommendations I can provide it, provided you tell me your math level. Most of the books I prefer are calculus based, but there are a few out there that explain just raw theory with little math to give a decent back ground. As far as using an o-scope to do the gain adjustments, well I never have done it that way, typically in practice I use a spectrum analyizer to look at the response and make the adjustments to optimize it. But I found that it still sounds better if I adjust by ear, and not by machine/meter. Simply because your o-scope/spectrum analyizer is not getting every possible input into the system to give you an accurate response to what is transpiring. Now if you want to get really sophisiticated and you want get true modeling of everything in your car, you need to place a LOT of mics through out your car, and read them into data files onto a computer that is loaded with good simulation software (I perfer matlab) then you can model the system, and you can see the effects in real time as you change settings, to see if you are truely maximizing everything, but then again THIS IS GOING REALLY DEEP into the subject matter. Sorry if this is kind of muddled or confusing, its hard to explain on a very simplisitic matter, if you give me specific questions maybe I can expand on the issue more.....or maybe not who knows. I will try to help anyway. But go DIGITAL, it is a lot more fun, and gives you a lot more flexability.
Craig