The AHS advice is to have the crown not more than 1" below the surface. With your last question do you mean once it starts or from the time of planting? It wouldn't necessarily be immediate but once it starts you'd see the foliage wilting and it would most likely start to come away when you tug on it. Do you remember seeing how the leaves disappeared, or are dead leaves still there? Edited to add that you might find it difficult to differentiate from dormancy although I would expect the effects of rot to be quicker. Bacterial soft rot also often has a characteristically awful smell, but rot caused by other pathogens doesn't.
Were/are there any dead or sick trees close to your daylily beds?
