I am a lot rusty, but isn't one of the rules of thumb for pleasing results setting the defocus aperture to the same value as shoot aperture, and rear?
IIRC f/4, f/4, and REAR as a good guideline for portraits.
Or f/2.8, f/2.8, and REAR. Or likewise with f/5.6. I'd have to go look up an old post or two of mine, but I believe that is how I used this lens, unfortunately now sold to help fund my D4, but someday I want a 135mm prime again.
You're correct that setting the defocus control to match your aperture is the standard way to use DC. Or, as the manual puts it, "To effectively blur background or foreground images. turn the DC ring so the f-number on the DC ring (aligned to the DC ring index) is same as the aperture in use."
But the manual then goes on to say "turning the ring beyond the aperture in use lets you create a soft-focus effect," showing that Nikon also anticipated use with "mismatched" settings as well.
"There is no real magic in photography, just the sloppy intersection of physics and art." — Kirk Tuck
You really should set up a controlled set of shots to see the effects of DC, especially at the largest apertures. At f2 and DC set to 5.6, the whole photo will be out of focus. In any case it's a wonderful lens. I mostly set the DC to 0.
Len's point about the entire image being our of focus if the DC setting is several stops higher than the aperture setting is very important. It can trip you up if you use the DC feature regularly. I found I had to develop a strong habit of always resetting the DC to 0 after using this lens to avoid be caught out by that at a later time.
What a great lens though - I smile every time I pull it out of the camera bag!