We are in exactly the same situation.   We purchased 2 extra tray's and have one set up as legal, and two for letter size.   However, I can't figure out how to make it automatically pull from one tray when the other runs out.   

I think I have found a way to correct this issue.   Go into the paper menu on the printer, and make sure that your paper sizes are set correctly.  Once you have those set correctly, then go into the paper type settings (which are under the same paper menu) and set those all to the same.   I set all of mine to plain paper, and now the like sized trays are linked and the printer will pull from one, after the other runs out.   It seems to be working for me.  

Can you think of a way that we could do this with the MP Feeder?  We are trying to get it to recognize when it is out of pre-printed stock in the MP Feeder and just move on to using Tray 1.  Any ideas?  Thanks!

To answer the last question:

Set the Paper typer on both MP Feeder and Tray 1 to the same (Letterhead, for example), set on the printer default tray to MP Feeder, and in the driver (or application) choose to print from MP Feeder (by paper source) or on Letterhead (by paper type).

That should do the trick