I'll chime in here... I have had teeth on my overflow boxes for years, and just finished building my first tank with a flat (toothless) overflow. I only have about 300 GPH going through the overflow, so it is VERY low flow, but so far I love it.
I actually ran the tank for the first time last night with water, sump, filter sock, etc... Due to the construction of the tank, there was a WHOLE LOT of crap in the water (saw dust, PVC shavings, etc). When I woke up this morning, I would say that about 90% of the crap was gone. I attribute this to having a good closed loop that keeps things suspended in the water column and good surface skimming that allows the crap to be brought down to the sump and removed from the water.
Add me to the toothless club.
As for how far from the top of the tank you want your overflow, that really depends on the look you want. My tank was a standard All-Glass type tank with a 1" black plastic rim. I didn't want the water to be visible below the black plastic rim, so the top of my overflow is right at the bottom of the black plastic rim. The water flows about 1 or 2 mm over the top of the overflow, so it's perfect!
-Scott