Bit more testing to feedback on.
The Oculus debug tool seems to be a bit fussy. The bitrate and ASW setting can be changed 'live' but the encode resolution cannot (requires service restart, disconnecting your headset). When this happens, ODT won't then let you change ASW (comes up with an error). But closing and reopening ODT then lets you change it again. I think restarting the service must give control of ASW back to Oculus software, so then you have to close and reopen ODT to give control back to that.
On ASW itself, there appears to be some kind of default fall back. If I turn off ASW (and confirm this via the ODT overlay), I can happily get say 50fps and it doesn't force my framerate down to 40. But if I get too close to 40, something is then locking in the framerate at 40fps even though ASW is still showing as disabled. However, when this happens it is still smooth with no artifacting, so its fine. In contrast, when the proper ASW setting is enabled, I do get some artifacting going on. So whatever this fallback framerate lock is, it seems to work better than ASW itself.
Ive tested various bitrates which you can change live. Starting low so you can see what to look for, most of the compression artifacts are gone by the time the bitrate is above 100, but there is still a little banding. 200-250 the banding is gone too. I can't see any difference going above 250.
I have now set the render resolution in the Oculus software itself to the maximum of 5408x2736, at 80Hz (a setting of 1.4x). This appears to give much sharper results, and better performance, than leaving it at 1.0 and using the MSFS supersampling slider, which I now leave set to 100.
I tried changing the encode resolution width. The Quest Link won't even connect with it above 4000. I have it set to 3648. Not sure if this is a headset decoding limitation. Question I have is if I am rendering at 5408, but the encode resolution width is set to 3648, am I not simply wasting some resolution there? Or does rendering at a higher resolution than the encoder runs at help the encoder generate a better image?
So at these settings (5408x2746, encode 3648, bitrate 250, ASW off), and in MSFS with TAA on, terrain and object LOD on 100, buildings, trees, grass, clouds, textures etc set to high, some other settings on such as ansiotropic filtering and other things on, I can still get around 50 fps looking in the air or it locks in at 40fps if I look down at the ground. It feels very smooth and the sharpness is very good. No artifacting. In heavy areas I would expect to come under 40fps though at these settings I think.
I now need to see whether I can dial back some settings and still be happy with the visual quality. As previously explained, at more around 1.0 on render resolution and settings around medium, I can get 80fps. Which I think is very good.
So can the 7900XT handle VR? I would say if I can get 50fps in MSFS with settings on high and 1.4X render resolution, or a solid 80fps at slightly lower resolution & settings, then in that demanding game that is a very strong result. I am getting no performance problems with the device itself as far as I can see. And no obvious problems with the encoder other than I can't use H265 (have to use H264, H265 is visually completely broken).