The middle hole will drop you plenty and still allow you some good suspension movement on the streets. If you use the third hole you're gonna have to really stiffen the rear so you you don't bottom out all the time. A hard bump may still allow the tire to rub.
I removed a set of those when I purchased my bike. The middle hole is "drop 1", the last hole is "drop 2". And like said above, you will rub inner fender and scrape header on occassion, especially riding two-up.
I went for the handling aspects over the drag the fairings aspect... added to the new corbin seat, I can barely reach the ground now... (but I can sure turn fast)
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