Does the OW1 have less distortion than the OW2 throughout its operating range due to a slightly different amount of coating on the dome?
Yes, but the difference is extremely, extremely small.
What is the lowest X-over frequency the OW1 can handle LR4, yet still remain unstrained with low distortion?
With no ferrofluid, I wouldn't go lower than 2khz LR4. Dennis Murphy managed a 2nd order crossover at 2500hz, but this was in a smaller 2-way that wouldn't see much spl.
If I need a X-over point around 2K would you recommend a 1" dome tweeter?
If you need to push more energy then I recommend a good tweeter suspension and ferrofluid.
I managed a 1600hz crossover with the OW1F and the W22. I thought the tweeter would squak under the heavy load and higher spl. It didn't. I subsequently learned the Bud Fried used a single 10uf capacitor on his OW2F (with Ferrofuild) tweeters. This seems absurd, but I can't argue with his commentary, or the results I heard in my experiment.
Dave Ellis believes that a good tweeter suspension (good restoring force) throughout the X-Max range of a tweeter is far more important than size. I believe these thoughts are reified by other folks. Given the very good suspension of the SS9500, Mr. Short manages a crossover @1600hz in his speakers. Sigfried Linkwitz manages a @1400hz in his Orion. These may seem absurdly low, but with a good tweeter suspension, it works. These are extremely good speakers with very well implemented designs.
Furthermore, not all ferrofluid applications are the same. The importance of tight component tolerances cannot be overstated. Not only to they couple the motor in superior fashion, they allow a very thin ferrofluid. When carefully applied, there is very little impact on sound quality. I sure can't hear the difference between the OW1 and OW1F. Jeff Bagby agreed.
If I wanted to crossover something at 2khz or lower, I'd use an OW1F. If you wanted a crossover under 1500hz, you really should use a 1" tweeter.
As a budget alternative, I really like the sound quality of the SEAS H1212 tweeter. It has a very solid suspension too. I believe this is the tweeter of choice for @ $25.
Summary... I believe that size does matter, but the tweeter suspension is more important.
Dave