There will be some heating of the battery as it discharges, but not that much compared to the heat from powering the rest of the laptop. The only time I've really seen a big problem from LCD backlight heating is with displays over 24"; my 30" screen consumes 50 W at minimum brightness and 135 W at maximum brightness, and the top can get quite hot. I usually run it at 25% brightness.
The optimum brightness level is "bright enough you can see the display clearly," which is entirely subjective. If you have the brightness on any LCD turned up too high (much higher than the brightness of other things in the room), though, you can give yourself eyestrain after a while as your eye's iris keeps adjusting itself between bright screen and dim room.