"Does having a larger pulley on the engine increase torque? Is that harder on the gear box (700)?"
By over-driving the transmission, you will lose a small amount of horsepower to the transmission, but you get to keep the torque.
You most likely don't want 1:1 anything. Not only can you damage the transmission, your engine's power curve will not be in tune to the track.
The most "popular" pulley set-up is the 8x5 scenario, however, if you have the resources, I would recommend purchasing the true A-Belt pulleys from EC, that is, both the 8 and 6 inch engine pulleys, and the 4 and 5 inch transmission pulleys, and experiment.
As far as chain and sprockets go, I have to say that depends. What power does your engine make and where? How big is your track? How tight are the turns, how does your mower handle on the inside/middle/outside lanes? This just takes experience unfortunately, and experience will cost you a few sprocket sets. Might I suggest the Quick-change sprocket kit from EC, and a 12 and 42 sprocket to start with...