I keep mine about 3/8-1/2" below the cap, but I'm running an expansion tank with it. Probably about 1" below the cap would be fine if you don't have a tank. I'd keep with the stock 7 psi cap to prvent any problems with the rad, and a 180-185 t-stat. A 160 was used stock, that's what I'm running and haven't had any problems.
Try to stick to the green antifreeze, or the universal "add to any" type. The pink/orange stuf can be rough on older type water pumps that were not designed to use it.
