[1] Lucifer tried to take over the present heaven, which went against God's design, and through mankind's sin, the earth was made imperfect, so there will be a new heaven and a new earth to align with God's perfect plan. That's not meant to be a complete explanation, but it aligns with Bible teaching.
[2] You have thoughts and feelings - are they not "residing" (your word) in the gray matter of your brain? - your spirit (loosely defined as the nonphysical part of the person which is the seat of emotions and character, or as some say, the soul) - where do you think it "resides", Bobcat? And if God is omnipresent, shouldn't that be the same place we would expect his spirit "residence" should be?
[3] The Bible makes no characterization of God as an "energy form." I've heard that expression before, and it may be your perception, or something you read somewhere, but I don't relate to it, even though it may not be a point worth debate.
I accept that he communicates with our spirit through his holy spirit. You wrote, "not sure how that would communicate with you in any way, other than sensations." Okay. We have a conscience. Most of us have feelings of guilt over wrong. We are amazed at the beauty of nature - all these are "sensations." "Believers" and "Unbelievers" (in God) alike get these feelings. Did they come from random mutations over the millennia? Could be, but I don't think so. What you believe is, of course, up to you.
Not clear on how the earth or the heavens would be made imperfect by something that individuals did, or how God would have designed an imperfect plan, but neither of those matters are issues of this thread anyway. As for God residing in the brain, here are my thoughts.
The mind is just a functional product of the brain. All thoughts are electrochemical processes of the brain. They are representations of things we have perceived with our senses. When our senses perceive something, those signals are then routed to that part of our brain where we try to make sense of the stimulus. That is where errors often occur. Ask any magician.
An idea or opinion produced by thinking is just a representation of something. It is not the actual thing, just as a picture or a painting of something isn't the actual thing. However, information in the brain is not a disembodied abstract entity; it is always tied to a physical source. So too, no thought can occur without its neural substrate.
The concept of your grandmother is not "contained" in one neuron such as "grandmother neuron,". It is a vast network of neurons that, in their connections with each other, collectively represent your grandmother memory.
Thoughts of a more abstract nature (Such as God), are just higher-level representations. They are built from hierarchies or ladders of representations. One thing reminds us of another because of some similar feature. At the bottom are still the physical sense perceptions and movements, upon which all other thoughts are built. Abstract thoughts are, in essence, still fundamentally just constructions from lower-level concepts.
We can create concepts of things that don't exist by making analogies of things that do. We can imagine a flying cow because we have seen other things fly and we have seen a cow. However, since these concepts are comprised of actual neural and neurochemical connections, if you could remove neurons one by one, the concept of something in your brain gradually dissolves, which is what happens with Alzheimer's or when part of the brain is removed.
To say that God lives in the brain, it is to say that God is either a product of those connections, or that some invisible and undetectable force or thing exists in the brain of a believer, but if it's not in the connections, then where?
We have a conscience, as you mentioned, but it is the result of feelings (emotions) which comes from the brain processing stimulus (Whether physical or information). It is still 100% the result of connections and we assign meaning to them. Guilt, or happiness, or regret are all relative to the elementary things we associate with it. That's what is alluded to as conscience. It isn't some mysterious disembodied dimension of the brain.
Again, not saying something supernatural doesn't exist (No evidence either way), but saying God exists in the hearts (Minds) of believers seems based on interpreted feelings more than a physical difference. JMO