Thank you for all the information and insight. It's been extremely helpful, and very well appreciated!
After doing some extensive testing (more than 6 hours worth), I have settled with these settings below...
Quality: 10
Bitrate: 2500
Buffer: 2500
Audio Codec: AAC
Audio Bitrate: 96
Resolution: 1280 x 720
FPS: 60
Process Priority Class: Normal
x264 CPU Preset: Fast
These settings have been giving me 100% smooth quality (in terms of consistent frame rate during the live stream). However, there is some static pixels, but it can still be overlooked by the average viewer. As for 1080p, I can easily do 1080p @ 60fps, but only with Diablo 3 and League of Legends that it works very well.
World of Warcraft and DayZ look TERRIBLE with 1080p. There is so much static pixels (although, text and still images are crystal clear).
My new goal now, that I would like to achieve, is to somehow fix the static pixels that I am getting with my current stream settings. I would like to stay with what I am using now, but if there is a way to improve on it and to greatly reduce the amount of static pixels, that would be amazing!
I don't if it's just me, but I've noticed that other 720p streams look much better than my own 720p. I'm guessing they're using a 4k+ bitrate.
Looks like I'll be doing some more testing. I am going to try and improve the image quality of my stream, and at the same time, staying under 3000 kbps bitrate.
EDIT: I can do 1080p @ 120fps, CPU preset on Slow, and Process priority class on High, and I still get a consistent 40+ fps in my games.