I favor standing up -- better for singing, definitely, to have the air column from diaphragm through throat to mouth line up straight, not hunched over. The "top" of the guitar, then, is parallel to your spine, perpendicular to the floor.

As far as the position of the instrument, you HAVE to get over wanting to look at the fingerboard. Positioning the guitar so that you see the frets forces your left hand to curl back over itself much further than necessary, or even healthy. It's understandable to want to see what you're doing, especially when starting out -- I remember feeling that way myself. I didn't really get over it until I started to try making barre chords -- they're impossible unless you're ready to allow the fingerboard to face straight out in front of you where you can't see it.

I played a nylon string guitar, barehanded, for the first five years. Took classical lessons briefly after about two years (not at the very beginning), but I was trying to learn folk guitar all along. The one summer of classical lessons wasn't an effort to switch genres as much as a general overall musical learning expereince.

When I first began learning to fingerpick, I kept that right pinky glued to the guitar for years -- even after switching to steel-strings and fingerpicks. Only after becoming more and more comfortable and loose was I able to detach my right hand from the instrument and develop a freer style of playing with picks, combining single-string picking, double & triple string picking, and full-six-string strumming.

When you stand up to play, the length of your strap becomes an issue. My personal preference, which I (of course) recommend for everyone, is to keep the guitar at a moderate height, with the lower edge of the guitar just about at your waist -- not crammed up under your chin like Jerry of Jerry and the Pacemakers, not down around your knees like some current rockers, but somewhere in between. If the height (i.e., strap length) is comfortable, you should be able to vary the angle of the neck to find the best position(s) for you. (I play at a variety of angles, with the headstock pointing anywhere from just below level to maybe 15-20 degrees above -- no rhyme or reason, just acording to how I feel.)