Just set it to level 5 and see if it hampers you. If it does, lower it a notch. Shouldn't be a problem though.
Side note, you did have encryption enabled in uTorrent, right?
And yes, allow both. Enabling encryption only means you will be sending encrypted data. Disallowing non-encrypted outgoing connections means you are essentially forcing encryption, meaning you will only be sending encrypted data. Disallowing non-encrypted incoming means you are restricting your access to the swarm to only people using encryption.
And uh, your IP is showing when you browse the web - every web page you visit can see your IP. I don't see why you think it's a problem. It might be bad if someone with malicious intent gets hold of it, but even then it's probably easier to insert a little spy onto a web page than to snoop around BitTorrent traffic.
P.S. Vuze is super bloated. I used it once upon a time, and despite having a reputation for being one of the best clients, it also had a reputation for being one of the power-hungry ones. Probably not the best choice as an alternative client to uTorrent now, but it probably was at some point in history.