My deck arrives Sunday, and I've been doing some reading about setting the deck to 40hz. From what I am reading, the built in limiter at 40hz can cause a lot of input lag. Anything keeping me from going to a games options and setting it to 40 instead, or will that have the same effect?
The Deck's 40hz mode is a proper frame-paced, triple buffer vsynced 40hz cap. It delivers consistent and smooth motion and input.
If you use an in-game cap with the default 60hz output you're going to get horrendous frame pacing and constant judder. It will feel much worse than a 30fps console game, with inconsistent motion and input. It's academic if the measured input latency is less with an in-game cap if it is bouncing up and down every other frame (which it will be on a 60hz vsynced display), inconsistent input latency is no use to anyone even if the measured average is technically lower.
Think of the Steam Deck as a console as that's what it's default presentation is setup to replicate. 30fps console games have high input lag compared to PC games running on high end hardware with unlocked 100fps+ frame rates but the comparison is kind of missing the point. The 30fps cap at 60hz is similar to a 30fps console game and the 40hz refresh rate cap is unquestionably much better by every metric as long as you are maintaining that performance level.
Anyone harping on about the input latency of the 40hz-59hz refresh rate mode is entirely missing the point. Sacrificing absolute performance and input latency measurements for consistent performance and battery life is a necessary compromise of a handheld console, and you can't avoid that on the Steam Deck. Unlocked frame rates and inconsistent frame times have no place on a handheld console, Valve have made the right choice here.
If you can't tolerate the input latency in a 30fps console title then you should probably avoid the Steam Deck. In the vast majority of cases you'll be able to do better than that (thanks to the 40hz-60hz window) but that's the baseline comparison you should have going in.
Just make sure you set a refresh rate cap that leaves a comfortable buffer as drops below the performance target are really felt with the lower refresh rate. Doing so will net you better battery life so it's win-win really.
Running the device on the edge is never the way to go. If you're playing a modern game, even if you can technically hit 60fps most of the time, consider dropping the refresh rate down to ~48hz or similar. You'll be shocked at how much closer to 60fps rather than 30fps it looks and feels, you'll get more consistent performance, the fan will slow down and you'll get a decent chunk of additional battery life.