I have an OSW but, rated up to 20Nm. In most cases, I'm running the system at about 50% force strength or less (generally governed via game FF Strength, not voltage limit). In theory, that suggests that my actual output would be in the 8-10Nm range.
I also have an AccuForce and run that at a bit higher output (60-70%) but, being that system is rated at 13Nm, so peak output as governed should be about 9Nm.
I'm of average size and build and I don't feel I need more torque than that but, I do think there's a strong argument to have some headroom for peaks and to not over-tax the electronic components so, I really think a 12Nm system is the lowest I'd want.
On the other hand, I know of players that build OSW's using monster-sized servo motors capable of up to 60Nm but, they are not utilizing the full torque, there are other dynamics involved such as the natural rotational mass and dampening that lend themselves to increased realism and very subtle grip-loss detection for use with oval racing.
I see it often said that non-DD wheel users (coming from mainstream wheels), don't believe they need that amount of torque but, I believe that's because they haven't used one, or if they have, not long enough to really understand the benefits fully.
Having the extra dynamic range allows us to run more torque without over-powering the effects and our inputs, while also enhancing our sense of front grip-loss (Understeer). So lets say you are playing AC and may be struggling with some road cars that have a tendency to understeer excessively; by increasing the FFB force-level, you'll be better able to avoid understeer because the onset will be much easier to detect and helps avoid over-driving the car.
In regard to the encoder quality, I think the 10k encoders should be the minimum and you wouldn't notice a huge difference going to a 2-mil encoder but, the rubber-like quality you get with the higher resolution
is noticeable. The jump from the 5k to 10k is quite obvious in terms of quality. Upgrading the encoder later can also be an option but, one should consider the total cost with shipping in the equation as well.
Used Encoders can also be found online from time to time as some people do like to upgrade to the latest and greatest.