How big a torsion bar nick is ok?

Smooth it out with a sander to get rid of the stress risers. Should be fine.

Nope. That bar is garbage.

You have to understand that the vast majority of the load on a torsion bar is carried on the surface. That’s why things like hollow sway bars work just fine and actually aren’t usually much larger in diameter to have the same rate.

That’s a damaged 45+ year old spring, and it’s damaged in a spot that’s critical to its function.

I had a spot like that and dressed it with a file and have been running them for years.

And how many miles? You put 50k miles on it yet?

That bar is junk.