I can only speak as a licensed massage therapist, but, I've witnessed ROM exams before. Usually common sense, which I know is not very common, should prevail. But you should inform anybody testing or touching you before they touch you about your injury and request that they DO NOT HURT YOU. Do this without drama, its a fairly reasonable request.
A good tester should ask when is the pain felt? and to what degree of pain? Like you said, just be honest - don't exagerate, and do not understate your pain either. Usually they will try to find first pain range and take you to a reasonable limit - but it will be both of your jobs to keep communicating. You should not be brought to severe pain. So, yes, your pain indication is taken into account during ROM testing. But so is the credability of your response -- the examiner will also evaluate if your embellishing or exaggerating. Just be honest. Real Simple.
Generally, there are 2 types of ROM tests. Passive: When they move your limbs and Active, where they test your own ability to move. Either way. Tell them when it hurts. No drama. Here is a great clip to see if your faking, they very well may do this on you.
Regarding your family doctor statements. He needs to use different language than just "believes" its service connected.
VA requires more than "belief." Terms such as "more likely than not" and he should state the actual injury as the event. Use the dates of injury. Also, having disc bulges are not in and of itself a nexus as many people have bulges without pain. Back pain science is very much in disagreement. So the MRI in 2005 doesn't prove the bulge was caused by your injury - only you have a disc bulge. And please, I do understand your situation. The best documentation for you will be to have a specialist, such as an Orthopedic Dr, state your current condition, your pain, your physical (and even mental) limitations and also state that you incurred the injury (just as you mentioned it) and he opines this injury is "more likely than not" causing your disability.
Hell - he might write its definitely causing it. But not necessary.
I'm sure the rest of the message board gives all the legal jargon pretty much the same.
Best of luck,