I understand that the gist of using Adwords is to start off bidding high, getting your CTR high, and then slowly lowering your bid bit by bit. So what's the general rule of thumb for the initial bid? Assuming we're talking about a moderately competitive niche, all the keyword qualities scores are "great" with a minimum bid of $0.06. How much would you bid?
When you are making the ad, click on View Traffic Estimator and it will give you Estimates for the maximum CPC: $x.xx Use this as a guideline for what it will take to be in #1. Estimates tend to be too low when a huge bid is required, and too high when a very low bid is required
Somebody's been telling you things that aren't true, I'm afraid. Google takes into account the position of your advert when judging your clickthrough rate, so in theory at least (and I've seen no evidence to the contrary) bidding high initially will have no impact on your quality score. That being the case, the answer to your second question is that you should be trying to bid the amount that makes you the most money. In order to do this, you need three things: 1) The value of a conversion to you 2) The conversion rate from PPC 3) The number of clicks that you will get from different positions in the search results. The first should be easy enough to estimate, at least. The second shouldn't vary too much depending on your advert position - run the campaign and see what it is. It may be a little lower at the top of the search results, but not much in general. The only way to get the third is to run your adverts in different positions, and see what it does to your clickthrough rate. From these, you can estimate your profit in each position. Trying new adverts will do two important things. It'll improve your clickthrough rate, which will mean that you can get more clicks in total (or pay less per click, if you budget is restrictive). It'll also improve your QS, which will mean that you pay less for your position, and hence your sweet-spot will move up.
That's correct, Google knows higher positions will get a higher CTR's so they normalize the data to account for this. Bidding high at the start to get a high CTR in hope of improving your QS is not a good idea, it won't work.
Your goal should be to get better-than-average CTR for the position in which your ad is shown. That's what will help the quality score improve. On the other hand, if your ad is getting 10% CTR at position #2 when other ads in the same spot have been getting 15% CTR, then you can't expect your QS to go up. You can't tell what other advertisers' CTRs are, but you can judge how your own QS is changing by keeping an eye on it in the Keywords tab of your ad groups.