How big a torsion bar nick is ok?

I think you missed my point. It can’t be done.

Removing enough material to remove the stress risers from the damage will create a section of bar with a different diameter. With the way a torsion bar carries load that section will operate at a different torsional rate then the rest of the bar. It might last longer than running it as is, but eventually it will break in that spot. You’re just trading a stress riser fracture for a fatigue fracture in the section of bar with a narrowed diameter.

I follow your logic here and I think you're right. Some confusion may be coming from the instructions in shop manuals that suggest cleaning/polishing/painting scratches and nicks in the bars as the recommended procedure...but the important distinction here seems to be a matter of degrees. A scratch deep enough to alter the spring rate of the bar (and at the outer edge, it doesn't take much) is a "ticking time bar." :D

I get that torsion bars aren't exactly the cheapest component to replace but they're also not so expensive that anyone in the car hobby shouldn't be prepared to replace a set when necessary. Put these in the category of brake calipers, ball joints, etc... they'll typically last a long time but when they need to be replaced, it's non-negotiable.