Good discussion

My thoughts:
The engine operates most efficiently at peak torque. But we dont all drive around at peak torque because then we would be driving at ~4000 rpm and to do this we would need to be in a low gear to match the speed we want to be at. This is what you are describing no Joris?? At these high rpm's the losses in the engine would be high and even though the engine itself is operating at peak efficiency, you could maintain the same amount of road speed whilst using less fuel (which is what we are talking about here).
Pumping losses in the engine come from the extra work the engine has to do to "suck" the air in. The engine has to suck because when the throttle is partly clossed the pressure in the inlet manifold goes below atmospheric. These pumping losses decrease with a larger throttle opening. So I assume this is where the main benefit of driving at higher rpm's comes from, and is the reason why diesel engine's are so much more efficient than petrol's, because they have no throttle.
Frictional losses on the other hand increase with engine speed since as the engine rotates faster more work will be required to overcome the friction of all the bearings, etc.
I 100% agree with your reasoning, I just don't think that in normal road circumstances *on a stock car* driving at higher rpm's will give you a benefit, I think the benefits would be outweighed by the increased losses in the engine. Am I right in saying that your car has a more aggresive cam aswell?? If so thats probably the main reason you get better economy driving at higher throttle opening than me since the pumping losses would be so severe.
I agree that 35mph at 5th gear isn't a very good place to be but to be honest I'm only ever at that speed for a short while. E.g. when I'm cruising down a slight incline where I know I'm going to have to stop soon. On an open road I'd rather be at ~45mph (5th gear), at this region I reckon you probably get the best fuel economy. All I know is with the way I drive, on a good week I get 50mpg, there are probably a few different combinations of driving methods to attain good fuel economy given that every method is a compromise off something else. What we need to find out in this thread is which is the best for our car to promote money saving and engine life!!
I've never really considered the engine being open loop at low rpm's though, when is the cut-off for this (if there is one)?