Couple of adjustments made based on further nginx forum recommendations.
1. Increased the worker processes to 2 and reduced worker connections to 1024. The use of this option is based on number of cpu's available and the need to reduce disk i/o.
2. Added Index index.php index.html index.htm to the http group. This option is global and is passed on. No need to include this elsewhere.
The system went live yesterday with 7 sites functioning. Immediate improvement over the previous system was noticed. The images are all loading extremely fast and the server load is very low, typically .15.
As mentioned before, this installation is based on the Nginx Catchall for Ispconfig 3. I have removed the kludgy www redirect since it did not work very well. The new failover feature improves the functionality. I had forgotten to create an nginx virtual host conf file for one of my sites and noticed the impact on the apache connections. After creating the vhost conf, apache dropped to half the connections..
One last word, READ the WIKI. The nginx site has a pretty good wiki describing many of the features uses for this proxy.
Hope you find this info helpful.