I just switched to 17/18 with 265/35 rears as well. I've noticed that the car feels less powerfull now... and the handling seems crappier.. but it could just be the tires.
This sometimes happens when you change more than one variable at the same time. You don't know which one was responsible for the change. (My guess is it's the model of tires, but I'm just guessing.)
Well, if the stock ones were on the car, and it was on the ground, then of course they looked somewhat shorter due to the flat spot on the bottom. I assume you took that into account when you said 1-2 inches?
My earlier comments were based on the outer diameter of the tires when they are NOT mounted on the car. sjs is correct in noting that wider tires deform less when they're mounted on the car, so that the distance from the top of the tire to the ground is less due to that factor alone. This would be in addition to the other two factors I mentioned in my earlier post.