I run both a 16" and 20" narrow kerf set-up on my 346. The 16" is really the right size for this saw, the 20" is good when I am cutting mostly small stuff but may have to cut something a little larger on occasion and I don't want to lug both saws into the woods. Using the 16" on limbing is perfect and this is the intended use for this saw. It doesn't get any better, I'd argue this may be the best saw on the planet for limbing. If you start cutting hardwood greater than 12" in diameter with any regularity, go to a bigger saw with a more aggressive chain, it will be more enjoyable and productive.
I really recommend the narrow kerf set-up for this saw; it helps to keep the rpm's up and slices like a knife. I also notice that the kickback tendencies with narrow kerf are greatly reduced, which is nice when limbing. Others mention that they prefer 3/8" or standard .325. I just don't see why you'd want to drag the saw down given it was built for speed, not torque.