Got a few mistakes in there.
From what I can deduce from the game (MWIF) and the RAC is that for each invading unit +2 is added to the defense if that unit invades from Sea Box 1 or 2 and +1 if it invades from Sea Box 3. Is that correct? What about if it invades from Sea Box 4? The closest explanation for this rule that I found in the RAC was in the example given on page 73.
Not quite. See the little number next to the sea box? At the 1 box it's 2*, 2 box its 1*, 3 box 0*, 4 box it's just 0. That's how much you subtract from each ships shore bombardment and add to the notional if you invade from there. The asterisk means it's +1 in weather other than fine. So if it had been raining in your example, each invading unit makes the notional +3.
The allied player is given the choice of which CRT to use (Blitzkrieg or Assault). From what I can tell the best choice for the allies is the 1D10 Blitzkrieg Table. This gives the Japanese only a 30% chance (9, 10 or 11) of capturing Midway. Even though a result of 5-8 would outright destroy only 1 of the 2 invading units, since the notional unit isn't destroyed then the "surviving" invading unit would be?
Notionals aren't units. They can't take losses, and if the notional is "left alive" at the end of the combat, he doesn't wipe out the invaders the way a real unit would if one were present.
Ergo, the assault table is the one to pick, you want to make sure you get kills if you want to hold the island.
If the notional land unit is left alive at the end of the combat is does wipe out the attackers since they have then failed to capture the hex.
RAC: 11.14 Invasions
If you retreat, shatter or destroy all defending land units, the invasion is successful. Otherwise, the invading
units are destroyed.
Each hex defends against an invasion with a notional land unit, in addition to any actual land unit in the hex.
Resolve the combat normally. Any combat result (other than ‘-’) destroys the notional defending unit. It
doesn’t count as a loss towards satisfying the combat result.
Intend attacking at dawn high water.