Personally, I hold the top of the front sight above the top of the topstrap (top of the groove). How much I can't really say, as I have done it for so long that I automatically get the elevation right. My Old Model Vaqueros shot about 6-inches low at 25 yds, and I file the front sight down until I get centered at 25 yds, but using a center hold on the target. Ruger used to make the front sight blade on the OMV's a bit taller to permit the shooter to file down the front blade as desired. (Sighting in is done resting my forearms, NOT the butt of the gun or the bottom edges of my hands. Also, I shoot Duelist, so I sight in one-handed. I shoot, file, shoot, file, etc.)
The weirdness of this technique notwithstanding, the point is, no matter how you hold, "consistancy" is the key word. Also, whatever works for you is what you should be doing.