I'll take the last, first. Correct, the increased spotting range from increased elevation (relative to the hex being spotted) is just the potential, one might say. LT or reduced visibility conditions still apply in general.
8.42 covers all cases that would block LOS between units at two different elevations as they (the rules) are couched in terms of relative elevations. So, yes, a unit spotting from 40-m would see over any 20-m obstruction, even a unit "hiding" right behind one (e.g. a unit in a clear hex just "behind" a 20-m woods or town. Of course, a town or woods on a 20-m elevation is itself effectively 40-m.
Simply put, to have a chance of blocking LOS between units at different elevations, a feature must be at an elevation at least equal to the higher of the two units involved in the LOS calculation (a necessary, but not sufficient condition).
The first bullet in 8.41 seems a bit unclear as a 20-m town (a town at 0-elevation) would not block LOS between two units if the units themselves are at 40-m. For that matter, even a town at 20-m (extending up to 40-m) would not block (this is analogous to the E-G case in the rules). For units at the same level, the obstruction must be higher than both units.
Hopefully I have this right for you.
Spotting was a critical factor in RtB #19,
http://www.pg-hq.com/library.php?type=sc...id=RtBr019. The 40-m hill of B19 allowed a Stalinist leader to rain down artillery on the
heads of the 3rd SS. ::cough:: Ok, bad pun, but given the snow conditions in the scenario forcing the Germans to be more-or-less road bound, that 40-m perch gave the Soviet artillery observer a nice clear view.
[Rules] Question on elevations/slopes, and, spotting
