You could do that and it would look good. Another option would be to put a cedar shake type product (I think Hardi Plank makes one) in the gable areas. You could do it in the same color as the siding or got with a contrasting color. I think both ideas (board/batten & shakes) would work on your house.

Another question, would you go with 5, 6 or 7 exposure? With the current wood siding we have 4 1/2 and I like the look. Contractor suggested 7 (mainly because it is less labor to install and they are busy) but it just seems to large. I want to try to keep with the style it was originally built (1910)

The style of your house lends itself more to the current exposure of the siding. I would stick with that. Saving a little money is not worth ending up with a look that you're less than 100% pleased with. I have an online service, Creative Visual Concepts to do virtual renovations to show you how your house might look. Check it out and let me know if you're interested.