Should oil in pressure line for gauge go all the way to the gauge?

Yes, liquid helium exhibits some other very non-intuitve behaviors.as well. Despite how it may have come across though, I hadn't actually meant the examples I mentioned as being a comprehensive listing ;^)

It is a matter of degree. Liquids have very very low compressabilities. You would not be able to measure the compressability of motor oil on a simple automotive oil gauge.

Put it under several hundred or several thousands of atmospheres, then you could measure it with a very sensitive instrument.

It is not even a factor in this general discussion.

My experience is that electric gauges are awful. Very inaccurate, though not as completely useless as factory gauges. Even fairly cheap mechanical gauges are much more accurate.

Go to a high-performance shop and get COPPER capillary tubing if you're worried about the hard nylon tubing that comes with gauges. Although I've never had the hard nylon stuff fail either- but you do have to route it carefully to avoid abrasion or getting it against something too hot.

That's the correct answer. It doesn't really make much difference. Having a little air in the line does help smooth out pulsations in oil pressure (from the pump, from the crank and camshafts alternately covering and uncovering various passages.) Air in the line does not decrease accuracy.

Ummm... no.

The air compresses to the exact same pressure as the oil in the engine and the gauge reads correctly.

Double ditto...I have seen MANY times that people route these nylon lines too close to a heat source and they eventually melt or decompose. If you do it properly, nylon is a good material, but this is no place to get sloppy.