Is everyone here aware of diffraction when shooting with m4/3s at a small aperture. I don't know if diffraction has occured in my pic above or not. How to tell and are they any indications of the diffraction so that I can avoid in the future. Of course I'm looking for the sharpest possible. What would be the ideal aperture? f8? f11? or maybe m4/3 need not be that small. Maybe an f5.6 is sufficient. My lens used in the pancake 17mm f2.8.
First of all, diffraction affects all systems at the same DOF, so mFT suffers diffraction no more than any other format. Furthermore, smaller pixels do not result in greater diffraction -- that's another myth.
OK, that out of the way. The "ideal aperture" is the one that produces the "best" photo.
If motion blur is not an issue (or even desirable), then the "ideal aperture" is what results in the static portions of the scene being their sharpest. Here, DOF is key. Portions of the scene outside the DOF are, by definition, not going to be sharp.
However, stopping down to get the whole scene within the DOF may result in noticable diffraction softening for the portions of the scene within the DOF. The ideal aperture represents the best balance of DOF and diffraction softening. On the other hand, if the whole of the scene is within the DOF, then stopping down only increases diffraction softening.
If you "need" to stop down to increase motion blur for creative effect, then you may wish to consider using a wider aperture and a CPL and/or an ND filter to reduce the light and increase the shutter speed.
If motion blur is an issue, then you have to balance the DOF with the noise. Stopping down will increase the DOF resulting in more of the photo being rendered sharply, but for a given shutter speed (to mitigate motion blur), this results in less light falling on the sensor and thus more noise. So, the competent photographer has to balance DOF with noise.
Hope this helps!