I'm obviously new to this myself, but I did see a video of someone (i think it was Gary of goldenmotor.ca) fitting a 7 gear cluster - barely. I've just ordered my 26" wheel and I ordered the 6 gear cluster with it, just to be sure.
If maintaining all my gears had been a top priority, I would have gone with a mid-drive setup. I used to think that mid-drive was the
only way to go, and I still concede a couple of advantages to that camp, but these new hub motors with their higher torque ratings make up a lot of ground. Plus they're quieter and I love quiet (ever actually listen to an EcoSpeed at full chat?).
I also ordered the torque arm. I figured at $28 a torque arm is pretty cheap insurance against the axle spinning and doing nasties to your wiring. I've read arguments pro and con about using a torque arm on the rear (it seems to be pretty much agreed that a torque arm on the front is a must), but i'd rather err on the side of caution here. The MP motors are rated at 1440 watts. That's damn near 2 full horsies (746 x 2 = 1492) trying to spin that axle.
I was thinking about your "improved torque on a smaller wheel" question. The smaller wheel will spin up to the max efficiency rpm quicker than a larger wheel, which might feel like it's producing more torque. I think it doesn't actually produce more torque so much as get into the "fat torque" part of the graph quicker - because it's getting up to higher rpm sooner. I could be wrong about this though (as I've been wrong on a number of issues) and it's best to ask one of the resident professori before laying down your hard earned dollari.
On the issue of battery size... rather, of battery capacity. The 10AH batteries are usually capable of 20 amps continuous discharge and the 20AH of 40 amps continuous. I figured for a motor that's rated at 48V 30A (equals that magic number of 1440 watts again), i'd better be able to feed it at
least the current it wants. I guess that means a 15AH battery is best suited - for one hour flat out.