This is something I would like to understand better as well
I have a 3 speed derailleur hub that I need to set up, using a friction lever. At the moment it is an hour's drive away from me and my workshop, and has a 5 speed hub temporarily fitted so adjusting was a relatively simple task. I would like to refit the original 3 speed, but how do I go about setting it up?
3-speed derailleur hub
As you can see, it is like someone forgot to fit the largest and smallest cogs of a 5-speed set.
Do I set it with the chain on the smallest cog, with the lever pushed forward, and clamp the cable at that point? Presumably then when I pull the lever and get the chain on the biggest cog I can use the stop to prevent further movement on the lever.
Like the OP I worry about the cable tension, and am not sure how much slack is ok when on the smallest cog, with the lever on its stop.