What is the rule of thumb on pickups height in relation to closeness to the strings? Am I right to assume the closer they are, the more sensitive they are until they are too close?
The closer the pickup is to the string, the more character it will have. However, the closer it gets, the less sustain and clarity you will have as the magnet starts interfering with the strings' movements.
Every pickup has its sweet spot. The spot with the right balance between what cds+stereo=life mentioned. Just gotta find it.