I want a Les Paul.

I tend to leave volume at 10 as well. The best signal to noise ratio at the source tends to help the signal chain along. Gain staging to reduce the signal is often more effective than amping it (since it also raises the noise level). The volume knob can add color though.

Edit - I only have a master volume knob as well... I cannot mix levels of the 4 pickups on the guitar.

I hope no one has forgotten that before you actually use TH2 you must hit the input level button in the top left hand corner. A window opens and it asks you explicitly to play your guitar at the loudest level possible and it will show and tell you when you have reached the optimum level for TH2 to work correctly. I usually crank all the knobs on the guitar wide open and slam a power chord in to it. I have found that when it says ride your gain on the guitar for optimum effect that TH2 reacts very much like a real tube amp. Also don't forget about the Master panel button next to the input level button. It is also very crucial to how TH2 responds to your volume and touch.

There is functionally no difference, in terms of added harmonics, between turning the instrument's volume up to 10 and turning the input level on the amp sim down to taste, versus adjusting the instrument volume to determine the amount of overdrive you get. The amplifier or amp sim won't know the difference.
 
However, standard gain-staging principles normally call for a hot signal coming in, for a better signal-to-noise ratio. You're also lowering the output impedance of the instrument when you turn the volume knob down, which can have a small effect on tone. Keeping the volume at 100% also eliminates any noise that might be added by the potentiometer itself (even a clean one), since it's essentially out of the circuit. 
 
So I guess my vote would be for 10, at least as the default starting point, using the input gain on the amp or amp sim to adjust the incoming level. I'm open to being proved wrong via an audio demo, but I believe there will be no tonal difference between adjusting one versus the other as long as the level hitting the distortion algorithm ends up the same.
 
However, it's much easier to tweak the level with your pinky finger while playing than it is to reach over and grab the mouse. The recorded part may not call for flat-out distortion from beginning to end. The guitar's controls really are there for a reason, which is to accommodate dynamic changes as you play.
 
The tone knob, though, that's a matter of taste. It's going to determine what frequencies the amp or amp sim adds harmonics to. Turning the tone control down will give a different effect than using a low-pass filter after the amp sim, because it's limiting what frequencies are presented to the amp sim to be distorted. Turning it up presents the full spectrum to the amp sim, increasing the percentage of higher harmonics and thus changing their distribution. 
 
My own preference is taking the capacitor out of the circuit by turning the tone knob all the way up on the guitar, and using a filter at the input of the amp sim instead. But then, I am not a guitarist! Subtlety on the guitar, for me, is something I add later through automation. :)
 
 
 

Thanks bit!

gswitz
I want a Les Paul.

LOL
Listening to your clip again this morning, I realized the hiss that kicks in probably has more to do with normalizing a very low volume.
And you are quite right about balancing the pickups as opposed to a single volume control.
My Riviera is even more fun, because it has separate volume controls for all three pickups.
"Cringe" might have been a little strong, but I rarely bring the volume(s) all the way to 10.
It could also be a matter of playing style. I tend to play somewhat aggressively, and over time I have noticed that I seem to get a more satisfying sound if the volumes are somewhere between 5 and 8. I might even occasionally have one as low as 3.
To an extent, I'm playing with tone, but it also affects the "bite", for lack of a better word.
Of course, as noted above, gain staging and setting the amp sim correctly are important.
I'm curious as well on what the general consensus is.
I may have a non-standard approach.
 

Anyone having an issue where they can still hear the clean signal in addition to the processed signal when playing with input echo engaged?

It could happen depending on routing. If the clean signal is slightly ahead of the affected signal check the interface direct monitoring setting.

Thanks scook. I didn't think to check which setting I was using.

Tube amp question...

If you turn the guitar down and input gain on the amp up, would this help heat the tubes and change the sound? Especially when playing quietly?