For accurate, simple readings, yes your arm should be perpendicular to the sensor and a lenght that makes the math simple. You can use an angled arm, but the math to convert to actual torque gets messier and involves vector math and some assumptions about slip.
But as long as the setup is consistent you can use the meter for your planes, just makes it hard to compare to others results.
As to stretch, you monitor torque throughout the winding process. The changes in torque as you increase or relax stretch are normal. It will help tell you if you can wind your motor harder, or if it is time to move in, etc. For FINAL numbers, the rubber should be at hook to hook length for consistent comparison flight to flight. Part of the fun is learning how to pack in more turns for the same launch torque, and that's where noticing things like you are become useful clues.