#1
does the height of the pickups alter the tone at all?

i have stock ibanez pickups in a Rg220B im assuming they are pretty bad pickups but havent gotten to replacing them yet

If the heght does change the tone whats better lower or higher?
#2
As close the strings as possible without touching them, like with palm muting or higher fret usage.
Cusp of Magic
#3
^ thats not really correct. the closer to the strings, the stronger the effect of the magnets on the strings. which means it can actually kill some sustain. you get more output, but too high doesnt really sound good if it gets too weak. it may work with some styles of pickups, like actives, because they have weaker magnets. but in general, not

changing the height does make a difference in tone though. you have to tweak it yourself to find the right place. its not like it is something that is the same on every guitar. it is about finding the right balance of height.
#4
Personal preference, higher will be higher output and less clarity and I think warmer. Lower will be less output, clearer and more treble. Also make sure they aren't so close that when you fret as high as possible they don't touch pickup.

Maybe just try different heights to see what you like.
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^ a winner we have.