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1) Has anyone dropped there GS350 - how did you do it - I want to maintain the smooth ride.
2) What is the best RIM size to get after lowering and did you guys use spacers?
Having a smooth ride after lowering is subjective from owner to owner. I personally lowered on Megan ez coilovers with 20" wheels and in my mind the ride was fairly smooth for what it was. It's fairly easy to lower if you are mechanically inclined.
to get the least harsh ride with springs, go with something like tanabe nf210. very modest drop, and gives ride that is very close to stock. any lower, ride will get harsher.
do a search in the faq for members example of wheel and tire size. 20" is the largest I would go with (IMHO); use of spacers will depend on your wheel offset and kind of look you are going for. do your research and make sure you know exactly what you want, pros/cons of wheel/tire size, etc, etc; worst decision you'll make is if you get a wheel/tire package that doesn't fit properly and give you rubbing issues.