Is there a recommendation on the type of user to select when choosing an Application Identity username and password?
When selecting a "User" to act as your Notification Server Admin user (this is called the "Application Identity User") to enter in during your configuration or NSsetup, it is recommended that you use a username and password that will not be changed often. This user needs to have "Local" administrator rights to the Notification Server. When possible, it is recommended that you create a new user that will be used strictly for the purpose of allowing the Altiris Notification Server software to use this Username for administrative processes.
Article 26442, "How to change the Notification Server's Application Identity"
Article 21849, "Changing the Application Identity account using SetID.exe"