"# if magnets are too close, than both upwards and downwards induction happens in windings between magnets. any asymmetry would lead to inefficiency. "
Yes this is leakage flux. Any flux that does not link with the coil is wasted. It doesn't cause inefficiency as you describe it but you do need more magnet for the same flux if you place them too close together.
"it would be preferable to cut a tiny gap in the iron - just in the middle of the magnet position 
would it? or i am confusing this with fluid dynamics. "
Can't find D on your drawing but if you mean what I think then there is no point. It will not help and causes unnecessary mechanical problems.
Flux
