When running in town at 45mph, the rpm's are 1,100 - 1,200rpms with o.d on. Just wondering if this is lugging the engine to much or do I run with o.d off at around 2000 rpms at 45mph.

 

This is my personal opinion.
There is probably nothing wrong with 1100 to 1200 rpm at 45 mph.
However...
I keep O/D off driving around town, and off driving on hilly 55 mph non-interstate roads.
I believe it's better for the engine to have a little more rpm to lighten the load.

Mine is usually running in the 1800 to 2500 rpm range. On the interstate, I do let it engage O/D, but turn it off to go up a long incline earlier the the pcm would do it. This prevents it from slowing too much and then having to downshift out of O/D, and possibly even down to second. At the top of the hill, I will put it back into O/D.

 

I agree and do the same. Lugging the motor puts more load on it and keeps it out if its power band, making it less efficient. Also, running at lower rpm's make the valves more prone to carbon deposits

 

x3. I usually have OD off. They only time it's on is when the speed limit is 55 or above. (3.8 L)

 

I have a 2000 rpm rule. I shift up and down at that point. Except when i feel racey. Then there goes the mpg.