Definitely go with the larger hose barbs to make it easier to run the encoder lines thru. You can take a light gauge rope and suck it thru the tubing with a vacuum or blow it thru the tubing with compressed air and then use it to draw the wires thru carefully. I have all of my encoder lines running in surgical tubing and it is pretty much sealed up. If you decide to go with o-rings one on the back would be fine but I made the bottom of my housings pretty thin to make sure the stud on the back of the motor stuck thru enough to engage the bushing properly. I used RTV silicone sealant on the back of the housing to seal the motor and on the front to seal the lid. It works great and is really easy to do and just wipe off when it is done. An o-ring groove in the lid would be cool but you would have to figure out just the right size or buy o-ring material in length and try to seal it together. Should be pretty cool but mine are setup so that the lip of the housing does not have enough meat with the lid holes and housing securing holes to allow for even a small oring... just seal it up however you wish and make sure it is airtight... peace
Pete