Recessed would be fine or in a small bathroom you might be ok with one surface mounted light (which has 2-3 bulbs).
PyramidDG.com

Lights wall mounted just above the mirror would not be too high, or make it glam and put a high semi-flush drum fixture that is large in the "center" of the space to light it all. See http://www.lightingdirect.com/kichler-42387-transitional-three-light-semi-flush-ceiling-fixture-from-the-lacey-collection/p1678862

Highly unlikely you could put a pendant light in the "center" of a 40 sq ft bathroom.

Two decrative sconces. One on each side of the mirror. And a couple of recessed lights to light up the center of the mirror.

For the best lighting, you need wall lights on both sides of the mirror in addition to a good central ceiling light. Because of the large mirror, the light will be reflected all around. If you can't add sconces, you should get a five-light wide fixture over the mirror with the lights facing downward.

The mirror is to close to the wall to put side sconces. If I only did recess lighting how do you feel about small halogen lights? Also how many recess lights would I need to properly light the bathroom? Lastly is there a 3 or 5 wide fixture you think would look good with this vanity and mirror?

You are not giving enough information to get en accurate response. A sketch of the bathroom would be helpful. How long is the vanity? It sounds like you only have room for a 33" vanity and that one looks way longer.

Vanity is 48 inches wide. Height is 37 inches and mirror heat is 39 inches and 44 inches wide. I am leaning towards 2 Led 4 inch overhead lights above the vanity and another 2 of those lights spread out in the bathroom. Thoughts?

How are you fitting a tub, toilet, and 48" vanity in a 5'x8' space?

My apologies the floor is 40 square feet. Does not include the tub area

It is best to have front and back lighting. This helps when applying makeup so there are not any shadows. also make sure you use the correct type of bulbs. Bulbs that put off more blue tones can make the skin look much different than it would in natural night. If you can't find wall mounted lights that you like for the space, we have install recessed lighting in the center of the room and have had pendents hand down just in front of the mirror. This only works if it is not a medicine cabinets since the lights would be in the way of the door swing.

Ok, that makes more sense. As everyone else is saying, the recessed would be fine for extra lighting, but not for the vanity. Any 36" long light above the mirror, on the wall would be much better. Or pendants and recessed if it is far enough away from the tub. An unconventional option would be to turn the mirror so it ie taller and then have room for sconces on the sides.