O/D in the city

Depending on your driving habits and road speeds, it probably would not go into OD enough to help mileage. And under some conditions it could cycle back in and out of overdrive enough to increase wear. This is one reason they advise not using it in city driving. Bottom line: you have nothing to gain, but lots to lose.

Leave the OD alone and let the trans do it's thing. The only good reason for canceling the OD is if the trans is "hunting" in and out of OD which is a possibility with some vehicles in low speed driving around the normal minimum upshift point for the trans.

Lugnut

There is no universal answer here as it depends on the engines power curve and your axle ratio. Some vehicles like my 89 4x4 burb will hit OD and lockup by 35 MPH at light throttle and pull it well without unlocking or down shifting while others will not hit OD lockup to 50 or more. The best gage here is if your vehicle hunts a lot between OD and drive (or locking and unlocking converter) in town, use drive in town and save OD for highway to easy wear and tear and possible increase MPG too.