That's really entirely up to you. The questions you asked us are the ones you should ask yourself. Though some things to put into consideration are the range of the line and the quality of tone you're looking for it.

It's the annoying thing about reading as a guitarist, you have a lot of ways to play a single line. Personally, given the range I'd play that all in first position and I imagine just about everyone else would unless they wanted a timbral change.
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If you really want to play it exactly by the book, then you have to remember that the guitar is written an octave higher than it sounds. Having said that, Artemis is right. This is something you have to decide. Do you need to play it in a lower register, or a higher one? It all depends on if you're playing by yourself or in a band.

I occasionally play jazz chord melody stuff and read sheet music to do it. I don't always play it exactly as written, but will sometimes move the melody up an octave, depending on what I want it to sound like.
Last edited by KG6_Steven at Feb 6, 2012,
I think you might be looking for something like this. It will teach you how to read sheet music and start you with some structure.

Alfred's Basic Guitar Method- Book 1